INTERNATIOCOURTOF JUSTICE
PLEADINGS, ORAL ARGUMENTS,DOCUMENTS
CASE CONCERNING
ELETTRONICA SICULA S.P.A.
(ELSI)
(UNITED STATESOF AMERICA v.ITALY)
VOLUMEII
Counter-Mernorial;Reply; Rejoinder
COUR INTERNATIONALEDE JUSTICE
MÉMOIRES.PLAIDOIRIESET DOCUMENTS
AFFAIRE
DE L'ELETTRONICA SICULA S.P.A.
(ELSI)
(~TATS-UNISD'AMÉRIQUE c. ITALIE)
VOLUME TI
Contre-mémoire; ruplique INTERNATIONCOURTOF JUSTICE
PLEADINGS,ORAI.ARGUMENTS,DOCUMENTS
CASECONCERNING
ELETTRONICASICULAS.P.A.
(ELSI)
(UNITED STATESOF AMERICAvITALY)
VOLUME II
Counter-Memorial;Reply; Rejoinder
COURINTERNATIONADEJUSTICE
MÉMOIRESP, LAIDOIRIESETDOCUMENTS
AFFAIRE
DE L'ELETTRONICASICULAS.P.A.
(ELSI)
(ÉTATS-UNIS D'AMERIQUEc. ITALIE)
VOLUME Il
Contre-mémoire;réplique;duplique The case concerning Elettronica Sicula S.p.A. (ELSI), entered on the Court's
General List on 6 February 1987under number 76,was the subject of a Judgment
delivered on 20 July 1989 by the Chamber constituted by the Order made by
the Court on 2 March 1987(E/etirotrica Sicu/a S.p.A. (ELSI). Judgment, I.C.J.
Reports 1989,p. 15).
The pleadings and oral arguments in the case are being published in the
following order:
Volume 1.Application instituting proceedings; Memorial of the United States of
America.
Volume II. Counter-Memorial of Italy; Reply of the United States of America;
Rejoinder of Italy.
Volume III. Oral Arguments; Documents submitted to the Chamber after the
closure of the written proceedings; Correspondence.
In interna1 references, bold Roman numerals are used to refer to Volumes of
this edition; if they are immediately followed by a page reference, this relates to
the new pagination of the Volume in question. On the other hand, the page
numbers which are preceded or followed by a reference to one of the pleadings
only or which appear between square brackets relate to the original pagination
of the document in question, which, in general, is not reproduced in the present
edition.
Neither the typography nor the presentation may be used for the pui'poseof
interpreting the texts reproduced.
L'affaire de I'EIettronica Sicula S.p.A. (ELSI), inscrite au rôle généralde la
Cour sous le numéro 76 le 6 février 1987, a fait l'objet d'un arrêtrendu le
20juillet 1989par la Chambre constituée par ordonnance de la Cour du 2 mars
1987(Elettronica Sicula S.P.A. (ELSI), arrét, C.I.J. Recueil 1989,p. 15).
Les piècesde procédure écrite etles plaidoiries relatives à cette affaire sont
publiéesdans l'ordre suivant:
Volume 1.Rcquétciniroduciiie d'in.t:tn<c. minioire des t.t;its.Unis J'Aiiicriqde.
Volume II. Coitire-iiiinioire de l'li.ilic; replique dcs C1:iis-Cnis J'Ariiériquc:
duplique de I'ltalie.
Volume III. Procédureorale; documents présentés à la Chambrc après la fin de
la procédure écrite; correspondance.
S'agissant des renvois, leschilfres romains gras indiquent le volume de la
présente édition;s'ilssont immédiatementsuivis par une référencede page, cette
référence renvoieà la nouvelle pagination du volume concerné.En revanche, les
numérosde oaee oui ne sont oÏéc'edéosu suivis aue de la seule indication d'une
piice dc procCddreiiu qui ont A(.inisentre crochets iisni 1.1pÿginliii,~nt)rigin.ile
du docunient cn quesilori. qui. en principe. n'p.~sétér:prodiiit dans la ~~r(.,enie
edition.
Ni la typographie ni la présentation ne sauraient êtreutiliséesaux fins de
i'interprétation des textes reproduits. CONTENTS - TABLE DES MATIÈRES
Counter-Memorialof ltaly - Contre-mémoirede I'ltalie
Introduction .....................
Part 1. Statement of facts ................
1. Necessity 10 provide an objective account of the facts which are
relevant to the case ................
2. ELSl's problems from 1962 to 1967; the substantial financial aid
given by ltalian authorities ..............
3. The basic rcasons underlying the economic weakness of ELSl . .
4. Raythcon'sinitial apathy towards ELSl; the highcos1of ils technical
assistance ....................
5. The 1967report and the search for an ltalian partner .....
6. ELSl's financial difficultiesand the labour disputes: 1967-1968 . .
7. The decisionto liquidate EI.SI (16March 1968);the actual prospects
of an "orderly liquidation" ..............
8. The requisition of ELSl'splant andequipment; itslegalbasis,nature,
justification and eifects ...............
9. Precedents concerning the requisition of plants ordered by other
ltalian local authorities (1950-1986) ...........
10. Compensation for the damage caused hy the requisition ....
II. Requisition and occupation of ELSl's plant.The impact of requisi-
tion on the prospect of an "orderly liquidation". Requisition and
bankruptcy petition ................
12. The appeal against the requisition decree .........
13. The decision taken by the Prefect ofPalermo on the appeal ...
14. The delay of the Prefect'sdecision ...........
15. The episodes characterizing the bankruptcy proceedings: 1968-1969
16. The sale of the supplies and of the ELSl plant .......
17. The value of the property in question and the price paid byELTEL
18. The role played by IR1 from 1967to March 1968 ......
19. The ltalian authorities' proposal for a settlement in March and Api-il
1968 .....................
20. The attitude of the ltalian authorities in the following months . .
Part II. The jurisdiction of the Court ............
Part Ill. The admissibility of the claim ............
Part IV. The interpretation and application of the 1948 Treaty and the
1951Supplementary Agreement .............
1. The legal terms of the dispute: the claimant and defendant Goverii-
ments' positions ..................
2. The rules on interpretation to be applied with reference to the 1948
and 1951Treaties between the United States and ltaly ....
3. The Treaty of Fricndship. Commercc and Navigation of 2 February
1948;ils impact on the probiem of investments .......X CONTENTS - TABLE DES MATIERES
4. Recent tendencies of the United States policy for the protection of
foreign investments ................
5. The pnnciples on which the 1948Treaty is based ......
6. The formula "in conformity with the laws and regulations in force"
in the 1948Treaty .................
7. The status of corporations, in the same Treaty (Art. II, para. 2) .
8. Provisions of the Treaiy protecting activities and goods which for-
mally belong to persons of the local State .........
9. Alleged violations of Article V of the 1948Treaty ......
10. ...and of the Protocol annexed to the Treatv .......
II. Inicrprci~iioii :andapplic~iirinof Arii~l: VI1of ihc 'ï'rc.ii!
12. C\,aluation oi ihc problcms raiscd by Article III or the Trî~t) . .
13. Article I oithc 1951Suonlemïniar\ ,\~rccmcni ma5 the reuuihiticin
an "arhitrary" measure? " ...............
14. Wasit "discriminatory"? ..............
Part V. Issues relating to the claim for reparation ........
1. Suhsidiary nature of the comments concerning the United States
claim for reparation ................
2. Links between the alleged violations of the Treaty and the alleged
damages ....................
3. Considerations on the sums paid by Raytheon as a guarantor of
ELSl's loans, or claimed by the United States in relation to Ray-
theon's credits towards ELSl .............
4. The issue of the legal expenses incurred by Raytheon .....
5. The claim relating to interest .............
Suhmissions .....................
DocumentsAnnered Io the Ci~unter-MernoriaolfIra/).
1. Treaty of Friendship,Commerce and Navigation betwecnthc United
States of America and the ltalian Republic, signed at Rome, 2 Feb-
ruary 1948,entered into force, 26 July 1949.79 UNTS 171 ...
2. Agreement Supplementing the Treaty of Friendship, Commerce and
Navigation of 2 Fehruary 1948,signed al Washington, 22 Sepiember
1951,entered into force, 2 March 1961, 404 UNTS 326 ....
3. Chamber of Deputies, Parliamentary Proceedings. Documents -
Billsand Reports. No. 246, pages 1-6,Session of 17December 1948
4. Chamher of Deputies. Parliamentary Proceedings, Documents -
Bills and Reports, No. 246-A, pages 1-9, Session of 17 Deccmber
1948 .....................
5. Chamber of Deputies, Parliamentary Proceedings, Debates, Session
of 24 March 1949,pages 7396-7404 ...........
6. Chamber of Deputies, Parliamentary Proceedings, Debatcs, Session
of 25 March 1949, pages 7427-7441 ...........
7. Senate of the Republic, Bills and Reports 1948-1949,No. 344-A,
Report of the Majoriiy, pages 1-10.sent to the Officeof the Presidcnt,
28 May 1949 ...................
8. Senate of the Republic, Parliamentary Proceedings 1948-1949.
CCXXl Session, Debates, 7 lune 1949,pages 8137-8139 ....
9. Chamber of Deouiies. Parliamentarv Proceedines. Leeislature III.
Documents. ~ill;and Reporis. No. ~37.pages 1.2 .rî;ntcd IO the
Orliccof the Prc\iJent. 8 Notember 1958 . . . . . . . CONTENTS - TABLE DES MATIARES XI
10. Chamber of Deputies, Parliamentary Proceedings, Legislature III,
Debates, Session of 7 October 1959,pages 10829-10831 .... 116
II. Chamber of Deputies, Parliamentary Proceedings, Legislature III,
Debates, Session of 15Decemher 1959,pages 12272-12281 ... 119
12. Senate of the Republic, Sessions of the Committees, 23 May 1960,
page 22 .................... 131
13. Senate of the Republic, Parliamentary Proceedings, LegislatureIII,
1958.1960, Bills and Reports, Document No. 931-A, sent to the
Officeof the President, 18July 1960,pages 1-3 ....... 132
14. Senate of the Republic, Parliamentary Proceedings, LegislatureIII,
Session 291s Assembly, 19July 1960,pages 13758-13759 ... 135
15. Hearing before a Subcommittee of the Committee on Foreign Rela-
tions, United States Senate, Eightieth Congress, Second Session,on
a proposed Treaty of Friendship, Commerce and Navigation, bf:-
tween the United States and the ltalian Repuhlic, 30 April 1948 137
16. Commercial Treaties, Hearing hefore a Subcommittee of the Com-
mittee on Foreign Relations, United States Senate, Eighty-Second
Congress, Second Session, Treaty of Friendship, Commerce and
Navigation between the United States and Colombia, Israel, Ethio-
pia, Italy, Denmark and Greece, 9 May 1952 ........ 178
17. Hearing before the Suhco~nmittee of the Committee on Foreign
Relations. United States Senate, Eighty-Third Congress, First Ses-
sion, Executives R (82d Cong. 2d Sess.), F (82d Cong. 2d Sess.),H
(82dCong. 2d Sess.),1(82d Cong., 2d Sess.),J (82dCong., 2d Sess.),
C (83d Cong., 1stSess.),N (83d Cong., 1stSess.).O (83d Cong., 1st
Sess.),Treaties of Friendship, Commerce and Navigation with Israel,
Ethiopia, Italy, Denmark, Grcece, Finland, Germany and Japarl,
respectively ................... 178
18. Article 2362 of the Italian Civil Code .......... 179
19. Article 2446 of the Italian Civil Code .......... 180
20. Article 5 of the UnifiedText N. 383,3 March 1934,of the Municipal
and Provincial Law modifiedhy the Law 27 June 1942,No. 851and
by the Law 9 June 1947,No. 530 ............ 181
21. Articles 6-160-216-217of the Italian Bankruptcy Law, Royal Decree
of 16 March 1942,No. 267 .............. 182
22. Articles 1,2 and 3 of the Law 22 December 1956,No. 1589,"Institu-
tion of the Ministry of State Participations in Industry"... 185
23. Decision No. 3086of the Court of Cassation,dated 23October 1974,
ForoItaliuno(1976). 1, 1166 .............. 186
24. DecisionNo. 198of Tnbunale Amministrativo Regionale ofAbruzzo,
dated 30 December 1974,ForoArnministrativo(1976),1-11.453 . . 190
25. Decision No. 3 of Trihunale Amministrativo Regionale of Puglia,
dated 28 January 1975,ForvIraliano(1976),III, 31 ...... 190
26. Decision Na. 208of the Consiglio di Stato, Section IV, 25 February
1975,Consigliodi Stato, 1975,1, 110 ........... 191
27. Decision No. 210 of Trihunale Amministrativo Regionale of Lom-
bardia, dated 30 luglio 1975,Rassegnadei TAR, 1975,1, 3076 . . 193
28. Decision No. 21 of the Consiglio di Stato, Section IV, dated 18
January 1977,Consigliodi Slaro, 1977,1,67 ........ 193
29. Decision No. 72 of the Ci~nsigliodi Stato, IV Section, dated 7
February 1978,Consigliodi Stato, 1978,1, 169 ....... 194
30. Certificate of the Ministry of the lnterior concerning the average
time taken to examine the appeals ........... 196XII CONTENTS - TABLE DES MATIÈRES
31. Excerpts from the decision of the Board of Directors regarding the
merger of ELSI S.P.A. with SELIT (1965) .........
32. Notes and Comments cancernine. the books and the documents
attached to the petition in hankruitcy ..........
33. Telex No. 57012of 6 April 1968 from the Mayor of Palermo to
Avvocato Nicola Maggio and Dr. Armando Celone .....
~4. -~~~x No. 56812of 6 Aoril 1968 from the Mavor of Pa2ermo~-o
Ingegnere ~rofumo .................
35. Letrer from the Mayor of Palermo entmsting Ingegnere Laurin with
the management of the olant. 16Aoril 1968 ........
36. ~a~istralës court of ~aiermo, 1nsoivencySection, technical-accoun-
tancy advice on "Raytheon-ELSI" S.P.A. from the financial year
196.1165to 31 March 1968 (technical advisor: Dr. Giuseppe Mer-
cadante) ....................
37. Sicilian Regional Law No. 12of 13May 1968,"Special Benefitsfor
employees of ELSI of Palermo and SATS of Messina" ....
38. Sicilian Regional Law No. 23 of 6 August 1968, "Further Special
Benefitsfor employees of ELSI of Palermo" ........
39. Sicilian Regional Law No. 31 of 23 Novemher 1968, "lntegrative
provisions ta Regional Law No. 23 (2) of 8 August 1968concerning
further special benefits for employees of ELSI of Palermo" ...
40. Report of the hankruptcy ~ec~iver, Avvocato Siracusa, 6 March
1970 .....................
41. Decision No. 5143 of the Court of Cassation, 1 Section, 7 Octoher
1982 .....................
42. Decision No. 6712of the Court of Cassation, I Section, 9 December
1982 .....................
43. Decision No. 2879 of the Court of Cassation, 9 May 1985, Ciuris-
prudenzoCommerciale (l986), II, pages 537-564 .......
44. Affidavit of lngegnere Busacca, dated 30 Octoher 1987 ....
UnnumberedDocumenrsArroched IO the Counrer-Memoriolof Irolj
Note verbale of the Embassy of the United States of America, Rome,
7 Fehruary 1974 ..................
The Claim of Raytheon Company and the Machlett Laboratories, Incor-
porated, against theGovernment of ltaly inconnection with Raytheon-
ELSl S.P.A. (same date as the note verbale) .........
Part 1. Statement of the facts ..............
Memorandum of Law in support of the claim of Raytheon Company
and the Machlett Lahoratories, Incorporated, against the Government
of ltaly in connection with Raytheon-ELSI S.P.A. .......
Introduction ...................
1. The community of interests of the Governments of ltaly and the
United States in the equitable resolution of this claim ....
II. The supremacy of intehational law ..........
III. Acts and omissions of the Government of ltaly in contravention
of customary and conventional international law .....
A. The taking of ELSl's property ..........
1. Preventing the effectivecontrol and management of ELSI
2. Impairment of legally acquired rights and interests . . 3. The protection of rights and interests .......
4. Taking without due process of law and without prompt
.a.ment of iust and effectivecompensation .....
(a) Taking ................
(b) The prohibition against taking property rights and
interests without due process or without payment of
.romp~. adequate and effectivecompensation ...
B . Occupation of ELSl's plant ...........
C . Failure of Prefect promptly to quash the requisition ...
D . Failure to achieve access to markets and advantages of Mez-
zogiorno laws ................
E . Interference with ELSl's right to freely dispose of real atid
personal property ...............
IV. Responsibility of the Government of ltaly for the acts and omis-
sions of its officiais ...............
V. Standing of the Government of the United States .....
A . Corporate nationals of the United States .......
1 Siègesocial .... : ............
2 Genuine link ...............
3. Situs of incorporation ............
4. Conclusion ................
B . Standing 10represent shareholders .........
1. Resume of pertinent facts ...........
2. The practice of the Governments of ltaly and the United
States ..................
(a) The practice of the Government of Italy ....
(1) The Cerruti case ...........
(2) Other ltalian cases ..........
(b) United States practice ...........
(1) TheDelagoaBayRailroadcase ......
(2) The El Triunfo case ..........
(3) The Rudenand Company case .......
(4) The Shufeldt case ...........
(5) Consistency of the United States position.to date
3. Practice of other States ............
(a) Mexican Eagle Oil Company ........
(b) The Ziur BenKiran case ..........
(c) The case of the Forests of CenrralRhodopia ...
4. Agreements of States recognizing stockholder claims . .
5. Opinions of international legal scholars ......
6. ELSI, a defunct corporation ..........
7. Direct infringement of stockholder rights ......
8. Standing of the United States based upon conventional
international law - US-ltalian treaty provisions ...
9.Conclusion ................
VI. Exhaustion of local remedies ............
VI1. Damages ...................
A . Compensation ................
B . Payment of ELSl's guaranteed loans ........XIV CONTENTS . TABLE DES MATIERES
C . Suitsbrought by ELSl's unguaranteed creditors .... 268
D . Raytheon's open accounts with ELSl ........ 269
E . Damage resulting from the legal. accounting. printing. and
other expensesincurred in connection with this claim . . 270
F . lnterest .................. 272
Summary of legal arguments .............. 276
Opinions referred to in Memorandum of Law in support of the claim of
Raytheon Company and the Machlett Laboratories Incorporated
against the Government of ltaly in connection with Raytheon-ELSI
S.p.A ....................... 278
Exhibitsariachedio the 1974 Claim
1-. Certificate of Incorporation of Raytheon Company ..... 278
1.. Raytheon Certificate of Good Standing .......... 278
1-3to 1.31. Documentation of citizenship for officersof Raytheon . . 278
1-32to 1.39. Documentation of citizenship of directors of Raytheon 278
1.40.Machlett Certificate of Incorporation .......... 279
1.41.Machlett Certificate of Good Standine ......... 279
.1.42 to 1.46. Documentation of citirenship if officersof Machlett . . 279
1-47to 1.49. Documentation of citizenshio of directors of Machlett . . 279
1-50 Secrei~ry'rCcriilic.iic uiih respect to ounershiJC Machlcti shsrci 279
1-51 t'lrst Naticinil Cil\ Ildnk conlirmition~ iii F.I.SI shares held ior
Raytheon and for ~~chlett .............. 279
1.52.ELSI's confirmation to Lybrand of ils capital structure and share-
holders ..................... 280
11.1.Manufacturineand salesaereement between Ravtheon Manufactur-
ing Compdny . \\'~lih.i.\I.isr.ichuseti\. C'S. itid I'ahric~ Ii<ili<ina
Knddri~rdiori Appareçch~R.iJiulogici .Cienm. ltaly . 281
II-: T:xt~~iinrciiiion:~rree~iienroi?IOctob~r 1955 . . 281
11.3.Novation agreemenï transferring manufacturing licenceto ELSl . 281
11.4.Investment history ................ 282
11.5.Setel agreement ................. 283
11.6.Radarange literature ................ 284
II.6A..Uni0wmanaeement accord on lav-offs ......... 284
11.7.IR1 chart ....................
11.8.Banco di Sicilia bulletin...............
II.8A. Press clippingson IR1 takeover.. ........... 288
11.9.Text of transportation suhsidy law ........... 288
11.10.Text of 30per cent procurement law (excerpts) ...... 290
11.11.Andreotti's speech of 25 July 1968 ........... 291
11.12.Correspondence with FIAT ............. 291
11.13.Minutes of meeting with IR1 of 4 January 1968 ...... 292
11.14.Justin Guidi's description of January earthquakes ..... 294
11.15.Hillyer'sminutes, dated 21 February 1968,of the Hon .Carollo's
meeting on 20 February 1968with C .F .Adams ....... 295
11.16.C .F .Adams' letter to the Hon .Carollo ......... 297
11.17.John Clare letter to the Hon .Carollo dated 28 Fehruary 1968 . 299
11.18.Announcement of decision to cease trading ........ 300
11.19. Minutes of ELSl Board meeting where decision taken to cease
trading ..................... 300XVI CONTENTS . TABLE DES MATIÈRES
111.40. Raytheon agreement to grant licence .........
111.41.Appraisal by Court-appointed expert .........
1V.l . Complaint of Credito ltaliano ............
IV.2 . Complaint of Banco di Roma ............
........
IV.3. Cornplaint of Banco Commerciale Ital...........
IV.4 . Cornplaint of Banco di Sicilia
IV.5 . Complaint of Cassa di Risparrnio ...........
IV.6 .Decision in FlMlR case ..............
1V.7 .Raytheon bnef to Supreme Court ...........
V.1 .Curator's report of 28 October 1968 ..........
V.2 .ELSl plant brochure ................
V.2A . Curator's accounts in hankruptcy ...........
V.3 .Scheduleof payments by Raytheon on guaranteed loans ....
V.4 .Raytheon's openaccount claim of Lire 550,000,000 .....
Certificates of Authenticity ...............
Replyofthe UnitedStates of America - RépliquedesEtats-Unis d'Amérique
Part 1. Introduction ..................
Part II. Statement of facts ................
Chapter 1 . The decision to liquidate ELSI ..........
Section 1 . ELSl received extensivefinancial and managerial assistance
from Raytheon and Machlett but could not become economically
self-sufficient ..................
Section2 . Raytheon's and Machlett's goodfaith efforts to negotiate a
soluti~n ~ ~.LSl's oroblems were frustrated bv the Resoondent . .
Section 3 . As is perm'ittedunder ltalian law. ~aytheon and Machlett
decided to place ELSl through an orderly liqui..tion rather than
through baRkruptcy proceedings ............
Section4 . At no lime prior to 1April 1968was it required by ltalian
law that ELSl be placed in hankruptcy ..........
Chapter II . The requisilion and resulting bankruptcy ......
Section 1 . Rather than allow Raytheon and Machlett to place ELSl
through a lawful. orderly liquidation. the Respondent requisitioned
ELSl .....................
Section 2 . By ils acts suhsequent to the requisition. the Respondent
also interfered with the bankruptcy process to its own advantage
Part III .Jurisdiction ..................
Part IV . Admissihility of the claims .............
Part V . The claims of the United States ............
Chapter 1 . Introduction ................
Chapter II . Interference with management and control of ELSl ...
Section I . Article III of the Treaty ............
Section 2 . Article 1of the Supplement ...........
Section 3 . Article VI1of the Treaty ............
Ch:ipicr III Iiiipnirmcni >finhe .trnent righis .ind iritcrcrir
Ch.ipicr IV W'ronglUIi;ikiiigof iniïrc.i. in propcri) . .
Chlipier V . 1:~ilurcio provide protection and sr'.-urit! . .
Part VI .Compensation ............
Chapter 1 . The duty to pay and measure of compensation
Chapter II . The nature of the injury ....... CONTENTS - TABLE DES MATIERES
Section 1.Raytheon and Machlett sufîeredfinanciallosseswith respect
to loan auarantee oavments. return of investment and open accouiits
Section2.~aytheo~in~urredsubstantialle g.ale xp en ses
Section3. Compensation receivedbythe trustee for the unlawfui requi-
sition was inadequate . . . . . . . . . . . . . . . .
Chapter Ill. Entitlement Io the value of ELSl as a going concern . .
Chapter IV. The award of interest . . . . . . . . . . . . .
Submissions . . . . . . . . . . . . . . . . . . . . .
Annexesto the Reply ofthe UnitedSrates of America
Annex 1.Statement hy Professor Franco Bonelli, University of Cenila,
dated 2 March 1988 . . . . . . . . . . . . . . . . .
Annex2. Statement by Professor Elio Fazzalari, University of Rome,
dated 29 February 1988 . . . . . . . . . . . . . . .
Anne.r3. Letter from Professor Antonio La Pergola, Professor al the
University of Bologna, to Raytheon Company, ddted 9 Decemher
-~7~ . . . . . . . . . . . . . . . . . . . . . .
Annex 4. Letter from Avv. Giuseppe Bisconti, Studio Legdle Biscoiiti,
Rome, Io Raytheon Company, dated 6 November 1971 . . . . .
Annex 5. ELSl - Elettronica Sicula S.p.A., by-laws (Articles of Incor-
poration), approved by the shareholders' extraordinary meeting of
19July 1961 . . . . . . . . . . . . . . . . . . .
Rejoinderof Italy - Dupliquede l'Italie
introduction . . . . . . . .. . . . . . . . . . . . .
1. The admissibility of the application and the Applicant's allegatiiins
on the merits: some introductory remarks . . . . . . . . .
2. The facts representedby the Respondent . . . . . . . . .
3. The Applicant's failure to provide evidence to justify ils clai.s .
4. In particular, the lack of evidenceconcerning the causal link hetween
the alleged acts and the alleged losses . . . . . . . . . .
S. The question of attribution of the alleged acts to the Italian Staie
Part 1.Statement of hcts . . . . . . . . . . . . . . . . .
1. Summary . . . . . . . . . . . . . . . . . . . .
2. (A) The requisition. ltalian practice concerning the requisition of
plants . . . . . . . . . . . . . . . . . . . . .
3. Instances of requisition of plants in the United State. . . . .
4. (5) The Prefect's decision . . . . . . . . . . . . . .
5. (C) The occupation by the work force . . . . . . . . . .
6. (D) ELSl's situation and IRl's role: the Applicant's contention. .
7. ELSl's economicand financial situation . . . . . . . . .
8. The responsibility for ELSl's crisis . . . . . . . . . . .
9. The obligation to file a petition for bankruptcy. . . . . . .
10. The claims brought by ltalian banks against the sole shareholder of
ELSl . . . . . . . . . . . . . . . . . . . . .
II. More. The "lifting of the corporate veil" doctrine in ltalian iind
United States law . . . . . . . . . . . . . . . . .
12. The quality of ELSl's plant and production . . . . . . . .
12.1. ELSi's request for benefits to which it was not entitle. . . .
13. The ternis of the sale . . . . . . . . . . . . . . . .XVIII CONTENTS . TABLE DES MATIÈRES
14. IRl's role in the scquisition of the plant ......... 443
15. Concluding remarks ................ 445
Part II.The jurisdiction of the Court ............. 449
Part Ill.The admissibility of the claim ............ 450
Part IV .The interpretation and application of the 1948 Treaty and the
1951Supplementary Agreement .............. 457
I. Aims pursued by the 1948Treaty and principles on which itis based 457
2. The ltalian nationality of ELSl ............ 458
3. The alleged interference by ltaly in the management and control of
ELSI .Was Article III, paragraph 2. of the Treaty violated? ... 459
4. Was there a violation of Article VII. paragraph 1. of the Treaty? 462
5.... or of Article 1of the 1951Supplementary Agreement? ... 463
6. The alleged impairment by Iialy of the United States companies'
rights and interests................. 465
7. The alleged ltalian taking of interests in property of Raytheon and
Machlett .................... 466
8. Discrepancy between the English and Italian texts of Article V .
parligraph 2. orthe Treaty .............. 469
9. The alleged failure by ltaly to provide protection and security for
ELSI ..................... 470
Part V .Issues relating to the claim for reparation ........ 472
1. The admissibility of the request for reparation ....... 472
2. Decisions handed down by the ltalian courts ........ 472
3. Unlawful conduct by the State and the obligation to make reparation
for any damage .................. 473
4. Causality nexus and the mcasure of reparation ....... 473
5. Adequate causality and the obligation to make reparation ... 475
6. Methods for assessing the damage .They are unsafe in the instant
case ...................... 476
7. Further arguments on refunding legalcosts and computing interest 478
Submissions ..................... 480
DocumenrsAnne-~ed to the Re~oindeorf Italy
I. Affidavit of Ing.Cavalli. dated 29 April 1988 ........ 481
2. Affidavitof Dr . Bevilacqua. dated 29 October 1987 ...... 482
3. Affidavit of Avv. Maggio. dated 29 October 1987 ...... 484
4. Decision N . 107of the Court of Cassation. dated 14 Ianuary 1976.
Foro Italiuno. 1976.1.2463 ss . Excerpts .......... 485
5. Decision N .1455 of the Court of Cassation. dated 21 May 1973.
Foro lialiano. 1973.1.2433.2460 .Excerpts ......... 487
6. Decision N . 971 of Tribunale Amministrativo Regionale of Puglia.
dated 17December 1974 ............... 487
7. DecisionN . 198ofTribunale Amministrativo Regionaleof Abruzzo.
dated l l December 1974 ............. 487
8. Affidavit of Dr. Ravalli. dated 18 December 1987 ...... 488
9. Decision N . 211/75of Tribunale Amministrativo Regionaleof Lom-
bardy. dated 16July 1975 .............. 489
10. Decision N . 210175of Tribunale Amministrativo Regionaleof Lom-
bardy. dated 16July 1975 .............. 489
II. Decision N .2228 of the Court of Cassation. dated 30 July 1960.
Rivistadi Dlritro Inlernazionale.1961.Vol .XLIV. pp . 117-119 . . 489 12. Decision N. 2579of the Courtof Cassation, dated 6 December 1983-
17 February 1984, CommissioneTribururiaCenrrule. 1984.11, 1143
13. Affidavitof Dr. Cammarata, dated 26 May 1988 .......
14. Affidavit of Rag. Ravilico, dated 26 May 1988 .......
15. Decision N. 2293 of the Court of Cassation, daied 6 July 1968,
Rivisrudi Dirirro Inrernuzionu~e1969,pp. 328-331 ......
16. Articles 834. 835. 1181. 2043. 2447 and 2621 of the ltalian Civil
Code .....................
17. Articles 323 and 185of the ltalian Criminal Code ......
18. Articles 23, 25, 26, 108 and 218 of the Italian Bankruptcy Law,
Royal Decree of 16 March 1942,No. 267 .........
19. Minutes of the meeting of 20 February 1968 ........
20. Remarks of Dr. Alessandro Alberigi Quaranta on ELTEL's Applied
Research Potential. dated May 1971 ...........
21. Letter to the employees of Raytheon-ELSI S.p.A., dated 16 March
1968 .....................
- 22. Letter to Mr. Busacca, dated 29 March 1968 ........
23. Securities and Exchange Commission form IO-K - annual report
pursuant to section 13or 15 (d) of the Securities Exchange Act of
1934for the fiscal yearended 31 December 1971 ......
24. Securities and Exchange Commission annual report pursuant (O
section 13or 15 (dl of the Securities Exchange Act of 1934for the
fiscal year ended 31 Dccember 1971 ...........
25. Federal Reserve Bank of New York Circular No. 6090 of4 January
1968. .....................
26. Speech delivered by Robert T. Scott, Vice-Prcsident, Tax-Leg:il.
National Foreign Trade Council in Philadelphia, Pennsylvania, on
9 October 1968.al the eieh-h annual tax conference. Universitv of
Philadelphia ...................
27. Federal Reserve Bank ofNewYork, Circular No. 6102of 25January
1968 .....................
28. D.Lgs. 12 February 1948,No. 51. "Approval of the New Statute of
lstituto per la Ricostruzione Industriale (I.R.I.)" ......
29. "The Only Answer [rom IR1 and Finmeccanica 1s: Hands of CIE.
Ansaldo 1sBitter over Its Reieciion". Il Soie- 24 Ore. 3 October
1987 .....................
30. "ELSI Repudiates Union Agreements. RejectsRequests to Withdraw
Dismissal Notices", L'Ora, 10March 1968 .........
31. R.D.L. No. 5 of 23 January 1933setting up of the "lstituto per la
ricostruzione industriale", with head officein Rome .....
32. Statement by Professor Pirr Giusto Jaeger, dated 17June 1988 . .
33. Articles 41 and 42 of the ltalian Constitution ........
34. Law No. 835 of 6 October 1950,"Reservation of supply and manu-
facturingorders for government offices,in favour of industrial plants
in the Southern regions and Lazio, and definition of the areas to be
considered as included in Southern ltaly and the islands": Article
16of Law No. 717 of 26 June 1965,"Regulation of actions for the
development of the South" ..............
35. Law No. 1589of 22 December 1956,"Institution of the Ministry of
State Economic Participation" .............COUNTER-MEMORIAL OFITALY
CONTRE-MÉMOIRE DE L'ITALIE INTRODUCTION
In the present proceedings the Government of the United Siates hasaitempted
to show that thc Italian Govcrnment is rcsponsiblc for a number of violations
of international law, particularly of the provisions contained in the Treaty of
Fricndship, Commerce and Navigation between Italy and the United Siziiesof 2
Februarv 1948 and the Aercemcnt suoolcmenti.. ihe Trcalv of 26 Sçotember
1451. li;scl.iinic~ iIi:it thc;llcgd \isl.iii.inrc;iii<G Ja~ri.igcii;ta<>~nite,l Siat~.s
coiiip.inie.. ihc K:i)thc<>ii Conip:tn!. and hl~;hlcti I.:~h<>r.iioric.Inc. on hch:,li
,iiulioni the <;~,crnnieni <if ihc United St:,te, has brourht thc Drcreni action
In answer to thc Memorial sub~~ ~~d bv the Governmènt of the United Siatcs ~ ~ ~
on~15May 1987ithe Iiali;#n Govcrnrnent Submits the preseni ciunter-~emorial.
One of the purposes of this Counter-Memorial is 10refutc the reconstruction
of the facts presented by the Government of the Unitcd States (Pan 1).
This part is followed by someconsiderations conccrning thejurisdiction of the
International Court oflustice (Part II) and the admissibility of the United States
claims (Part III). In Part III ihe ltalian Govcrnmeni lodges an objection on
admissibiliiy. which, in ihe defendant Government's view, should lead Io the
rejection of the claims.
However, the ltalian Government, in order not to hinder the rapid administra-
tion of iniernational iustice. declares that it would Favour the conclusion of an
agreement between the pariies, under Article 79, paragraph 8, of the Rules of
Court, that the objection should be heard and determincd wiihin thc framework
of the merits.
Part IV of the Counter-Memorial deals with points of law relating to the
substance of the allegations made by the Governmenl of the Unitcd States. In
practice, this consisis of the interpretation of the above-meniioned 1948Treaty
and 1951 Supplementary Agreement and the problcms related to their correct
application.
Lastly, Part V of the prcseni Counter-Mernorial deals with issuesihat may be
of interest only in the case of some of thc claims made by the Government of
the United Siates being upheld by the Court. This Part centres around the
methods usedto calculate the darnagesufferedand theevaluation ofsuch damage.
In accordance wiih Article 49. paragraph 2, of the Rules of Couri, ihe Counter-
Memorial finally includes the submissions that the Italian Governmeni respect-
fully present to the Court. PART 1
STATEMENT OF FACTS
1. Necessity to provide an objective account of the facts which are relevant to
the case. -The statement of facts contained in the Memorial suhmitted by the
Government of the United States shows a great many inaccuracies, gaps and
tendentious interpretations. It is therefore necessary to run over al1the relevant
circumstances of the case in order to provide a more complete and above al1
more accurate account.
2. ELSl's prohlems from 1962to 1967; the substantial financial aid given by
ltalian authorities.- From 1962, the year in which Raytheon hecame ELSl's
controlling shareholder, ELSl proved to be a constant loss-maker, incapable of
competing with other companies in the sector. As also the annexes Io the claim-
ant Government's Memorial show', ELSl's accumulated losses reached Lire
326,900,000in 1962,Lire 1,228,600,000in 1963,Lire 284,700,000 in 1964, Lire
361,000,000in 1965, Lire 2,007,000,000 in 1966, and the record figure of Lire
2,681,300,000in 1967.
Certainly, ELSi's diRculties were not due to the Tactthat ii was a foreign-
owned company? ELSI'Smain competitors in ltaly were in fact also non-ltalian
;omp.inier. naniel), Philipr. 3 1)ut.h <<>nipan!.Siciiisn.. ;i (isrnitsn cumpiny.
:ind Th,~ni.ir ll~iu%ion,a Frcncli c.imp:iii). 1hc rr.s\i,n iihy FISI c<>niinued 10
los iti n~ùrkct.h.,rc\ \i:o due \<>IC iIihe C.icith;it tlic coiiipitit.rr\ in:in.ig-d
to oiier the same or even superior-quality products at considerably lower prices'.
And that is not all. Unlike ils non-ltalian competitors, ELSl \vas always able
to count on substantial financial aid from the llalian Government. Back in 1956,
when Raytheon first became a shareholder in ELSI, it successfullyrequested the
Sicilian Rcgional Government to takc a 33.3 per cent stake in the company, and
obtained a ten-year low-interest loan of Lire 700 million from the Regional
Government through ils financial company, IRFIS4. Between 1956 and 1966,
ELSi was granted further low-interest loans totalling Lire 6,000million, of which
Lire 3,500million were givenin the las1four years whenthe company was wholly
controlled hy Raytheon5.This does no1 take account of al1the other grants of
various kinds, such as the tax relief for the merger with the former group
company, SELIT, in 19656.This shows that the treatment meted out to ELSl by
the ltalian authorities was anything but discriminatory.
3. The basic reasons underlying the economic weakness of ELSI. -The truth
is that ELSl had been a loss-maker from the very beginning. The bulk of its
'Cf.Memorial submitted bythe United States oA f merica(CaseconcerningElettronica
SiculaS.P.A.(ELSI))(hereinafterreferredto as "Memorial"),Ann. 13,ScheduleBI.
Contrary 10whatRaytheon manager slaim,accordingto what issaidinthe Memorial,
1, p 48.
For an explicitadmissionin this regard on the part of the ELSlmanagement, see
"Project forthe Financingand Reorganizaiionof the Company - 1967Report prepared
by RaytheonELSl S.p.A."(hereinafterreferredto as"1967Report"), Memorial,Ann 22,
, .. ?(U
" I"<~~~~~~ii:r-~~rern:~<>li?lO<i.iherIrjr, \ 1. nn II
Sic forihrre iigurc'l9h7 Rcp.ri". 1.p 2211
at whichthe rnergerdecisian&siIIfaken.icc.>?thenieci.ns,,iihrt ILSIH.i.irJ Dlr?ci.ir,.Raytheon, Charles Adams, could do was to let offsteam with Calosi: "You have
made a terrible mess of thingsL!"
In reality, the company was not only being run at a loss, but was managed on
the verge of illegality. It was not without reason that the expert witness for the
bankruptcy, Giuseppe Mercadante, said that ELSl's standard practice was to
artificially increase the sales volume (probably with a view to showing the parent
company in the United States positive re~ults)~.The bankruptcy receiver, Mr.
Siracusa, commenting on Giuseppe Mercadante's report, put the company's
insolvency down to the cavalier wav it had been managed and to the "poor
organization and mistaken policies of the commercial de~artment"~.
Raytheon's apathy towards ELSl is demonstrated above al1by its very low
capital investment in the company. In the period 1962-1966,Raytheon's invest-
ments in equity in ELSI totalled a bare 3,600 million.
The inadequacy of these investments to meet the needs of the company is
proved by the fact that in 1966, with a share capital of only Lire 4,000 million,
ELSl had outstanding debts totalling Lire 15,910millionof which only Lire 4,230
million were guaranteed by ~a~theon~. This excessive indebtedness naturally
gave rise to huge interest charges: Lire 839 million in 1965,Lire 865 million in
1966and Lire 960 million in 1967.Figures of this magnitude would have caused
a crisis in any company, but in ELSI's case the debt hurden was absolutely out
of al1proportion, considering that the company's sales during that same period
never exceeded Lire 8,000 million, arid that the item "operating profits/losses"
(sales minus production costs, after deduction of interest charges) in the 1967
balance sheet showed a loss of Lire 1,721millions.
Moreover, while Raytheon left ELSJ under-capitalized, it did not hesitate to
charge very high rates for the technical assistance it supplied to its subsidiary,
nght to the very end. In the period 1965-1967, ELSl had to pay about 800
millions a year for "updating, preparation, studies and other work", and yet
during the same period a further 650 million was paid for "group assistance
royalties, and technical consultan~ies"~.
In conclusion, there seems to be good reason for the highly critical judgment
of the expert witness Mr. Mercadante on the subject of Raytheon's attitude to
ELSl during al1those years:
"1. . .] There are grounds for believing that the parent company, which
provided assistance to its subsidiary upon remuneration had ample time to
realize that the subsidiarv's indebtedness was swelling orogrcssivelv and
growing out of al1 to the volume of production, and Ge are
surprised that the parent company did not sec it fit to bring the subsidiary
within more realistic limits7."
5. The 1967report and the search for an ltalian partner. -At the heginning
of 1967 ELSI's accrued losses had far exceeded one-third of the share capital,
with the result that under Article 2446 of the Italian Civil Code ELSl had to
reduce its equity from Lire 4,000 to 1,500million. It was only at this point that
Raytheon finally decided to act.
'Scott.op. cil.p. 365.
See doc. No. 36.o.212. infra. COUNTER-MEMORIAL OF ITALY 7
A delegation, headedby the Raytheon President,Tom Philips, wentto Palermo,
and the first thing they did was to replace Carlo Calosi wiih John Clare as
President of ELSl and to appoint Justin J. Guidi as the second managing director
of ELSI. aloneside Aldo Profumo.
Ai ihc rcq&si of ihr pareni company. ELSI'Sncu nt.inagenicnt prcpared thc
"l'r6)~ccitor ihr Finansing and Rcorgiinizationoiihe C'onip:iny - 1967Rcporl".
in u.hich the) ihorou~hly cin:il)rcd ihc causes oi'ihc cri.is anJ the r~o~sinilitsfo
pulling out of il, ~hë~~os~ecis that lay ahead were dramatic. The report made
no bones about the fact that. if one had lcft the company io ils own devices, ils
days were practically numbered: "Given the current product base, the current
level of spending and the increasing adverse pressures mentioned above, heavy
losseswill continue and in al1probability increase . . .(1,p. 221); "the current
product and people structure of Raytheon ELSl does not produce desirable
results, and in fact continued operaiions on the current basis is quite iinsound"
(1, p. 222). The only chance of survival was indicated to be an intervention by
ltalian authorities to the eiieci that, iiircr alfa, (a) ESPI (Ente Siciliano per la
Produzione Industriale) would immediately investin ELSl Lire 6,000 millionas
additional capitalization of the company; (b) the Central Government would
guarantee that over the next four years ELSl would receivegovernment procure-
ment orders for not lessthan 5.000million lire: (c) the personnel would be given
retraining courses organized ai the expense of the SicilianRegional Governmeni:
(d) the Central Government would undertake to do what it wuld sa that ELSl
could obtain al1the other financial facilitiesavailable under current legislation
for the development of Southern ltaly (1, pp. 222-223).
On beine informed of the erav-,v of the situation. the ltalian auihorities
inimediaiel) çiaicd iheir rc~dincsrri?c~aniincthe pt~slihiliryoi:~ruluiiuii aiicpt-
ahle to cveryone injoint coniuli.ition uirli ihc ElSl m:inxgcmrni. In nri\i,iiydid
ihcv relccislioecthcr ihe surrcstion ol ouhlic inicr\.cniion on hchxli ni ihc iiilinr
cohoahv. It was simolv a auestion of definine the terms of interventiori. since iÏ
&asrun~inkable th& >II if ELSl's demandy might be accepted. The Sicilian
Regional Government immediately poinied out that the financial contribution il
wa; being asked to make excecded fis rcsources, and that at al1events, it would
acquire a direct stake in ELSl only if it was joined by another partner. possibly
a company of the IR1 group. Raytheon had itself already been in touch with
some companies on ils own account. But IRl's response was decidedly negative.
IR1 was studvine the oossibilitv of enhancine ils own comoanies' oresericein the
electronics sict;. and it was-iherefore no; at al1 interested in'helping ELSl
which - at least according to the restructuring plans elaborated by the company's
manaeement - would have inevitably becomeiheir direct commtitor ifor further
detail;, see infra,para. 18).
6. ELSl's financlal difficultiesand the labour disputes: 1967-1968. - Mean-
while, ELSl's difficultieswent from bad to worse. The balance shret of 30
Seotember 1967closed with a loss of Lire 2.681 million. withthe result that less
ih~n one )car :iitcr Ihc Iarl rcdi.ciion. lhc ~,iimp~n)'a\Ii:irr capii:il should hais
been reduscd once dgun hc:aurc of losjei. ï'hc sonipdii) dirc~.tors.uho. unJcr
Arii~~lc244h~iiihcIialian CiiiI Code. should hatc asked ihe jh;irehuldcis alre~d\
before the end of the fiscal year "to take the appropriate steps", did nothing if
the sort even after that date: and yet ihe lossescontinued to increasc also in the
lasr quarter of 1967and the first quarier of 1968.According to the estimatesof
Raytheon's expert accountanl, on 31 March 1968 ELSl had accrued losses of
Lire 3,750millionL.This being so, ELSl's management clearly failed to comply
' Mernonal, Ann. 13,Schcdule BI.8 ELETTRONICA SICULA
with its duties under ltalian law to protect the company's creditors (not to
mention its shareholders!) in the event of persistent losses totalling over one-
third of the share caoital'.
ELSl's financial dkiculties were compounded by serious labour disputes during
that same period. Already in June 1967, hecause of the uncertain market prospects
and the need to cul its eiorbitant production costs, the company had announced
the shedding of 300 jobs. Faced with the inevitable protests on the part of the
trade unions and the threat of a solidarity strike by al1 the workforce which
would have brought production to a complete hall, the Sicilian Regional Govern-
ment immediately came to ELSl's rescue. An agreement was concluded under
which the company agreed not to dismiss al1 the 300 employees, but merely to
lay off temporarily 168of them, and the Regional Government undertook to pay
the wages of the laid-off workers until they were able to resume work? For a
few months, peace was restored in the factory, but at the beginning of 1968,
when it became clear that not only would the company never be able to take
back the laid-off workers, but also that its days were numbered, serious union
unrest resumed. In January and February 1968, the days on which the whole
workforce, or specific departments, were on strike were more numerous than
those of normal activity. In early March, the company decided to dismiss the
168 laid-off workers.
The reaction of the workforce was immediate. On 4 March 1968the company's
workforce was called out on an indefinite strike, and a sit-in on the factory
premises began 3.
To have an idea of the general situation at ELSl at that time, it should be
borne in mind that even before the workers' sit-in, precisely on 2 March 1968,
al1 that remained of the company's administration, including its accounting
records, was transferred wholesale to a small regional office in Milan" and
thereafter the Board no longer met at the Palermo headquarters, but began
instead to meet in Rome. After January 1968 the accounts for the company's
operations were no longer kept properly, and when Arthur Schene, the Vice-
President of Raytheon's Board of Auditors was summoned urgently to ltaly in
early April to draw up the balance sheet for the liquidation of the company, he
had to work on the basis of records that had been kept only up to 31 December
1967'. Only afterwards, in their petition for bankruptcy, did the directors try to
explain this further example of malpractice which - incidentally - is a criminal
offence under the ltalian Bankruptcy Act6. The reasons advanced for having
been prevented from keeping the accounts properly were - in order of appear-
ance - the Christmas and the New Year's holidays, the earthquake that struck
part of Sicily in January, and the strikes . ..'.
' For the lullII.\,>i,\ri 2446. <:i\iCode.,ce Jri; N<, 19
'/hi, ('lut01K,~,i/ti.i,ti('L»!puni ,nJ rhr lf<iihlor I.di.rl...Ini<,rp<>r.iriir<iittcr
rhr Goirrtimrnrri!/ru/) lnConni.iion ,i,i/Rirrihi~.it,-EI.SISp A(htrcinditrrrcicrrcJ 12
as "rhe claim").
' See Memorial.Ann. 81, 1,pp. 384-385(containingthedecision of theCourt of Appeal
of Palemo of 24January 1974);seeal- "TheClaim",p.233, infra [p.291,where reference
is madeto "completestrike . ..which was never settled; a furthereiplicit admissionin
thisconnectionis made in the exolicativereoort of ELSl Board of Directors.attached to
thepetitionin bankruptcy,see dit. No. 32. '
' SeeMemorial. Ann. 30, containinga statement to ihis eiiectby DomenicoA. Nett,
an ELSl Auditor.
See Memorial,Ann. 13, 1,p. 123.
CompareArts. 216-217 of theltalianBankruptcy Act, thelulltextofwhichiscontained
indoc. No. 21.
' SeeExplanatoryreport on the petitionin bankruptcy(doc. No. 32). COUNTER-MEMORIAL OP ITALY 9
7. The decision to liquidate ELSI: the actual prospects of an "orderly liquida-
tion". - On 16 March 1968 the Board of ELSI. "in view of the continuous
deierioraiion i~iihe ci>mpÿn)'slinaiici31situation" de~ideJ io put rhe mrnp3ny
intu Iiqurd~tion Xlore zpeciiic.~lly."proJuct~dn \vas to hc Jisci>niinucJ immedi-
ately, whereas cornmerna1 activities and employment contracts were to be termi-
nated on 29 March 1968"'.
According to the United StatesGovernment, this decision was taken by ELSl's
two shareholders with the view of beginning an "orderly", or as it is elsewhere
described, "voluntary" liquidation of the company, "in order to minimize their
losses". The claimant Government also contends that only after the hlayor of
Palermo had requisitioned the factory the company's financial conditions
worsened to such a degree that bankruptcy became inevitahle2.
But this is far from the truth. ELSI's decision to halt oroduction imniediatelv
;ind IO .tiip Jny e~~nirnerci~aIçtii'iticsuiihini\i<iirceks. u;is b) iio niuns a irce
choice: it U'3S;imatter t>I'abr<>lutnccccssit) On 7 M.1rr.h1968Ra)thzon itirni~ll)
n,~iilicdELSI ihai. cien ihough 11 h~d niitcd that
"[. ..]Raytheon-ELSI requires additional equity capital in order to continue
its operations [. . .] Raytheon company cannot ohligate itself further and
must decline to suhscrihe ti~any further stock which might be issued by
Raytheon-ELSI or to guarantee any additiondl loans which might be made
by others to Raytheon-ELSI 3".
ELSl was therefore certain that it could no lonee- counf on Ravtheon for even
ihi \Iightz~thelp And since iis co~ers h.id ilried ~p a long iimr.r.irlicr. the onl!
w,i) LU nleet 11..-~~mmiirnsntishortly i~llinàdue for ps\meni u..~1,)Iiqiiidatc iis
assets.
After all, this had been bluntly anticipdted by the President of ELSI, John D.
Clare, at a meeting on 20 February 1968 with the President of the Sicilian
Regional Government, Vincenzo Carollo. According to the full version of the
minutes of that meeting, drafted by ELSI, and annexed as Exhibit 11-15to "The
Claim",
"[. . .] CFA [Charles F. Adams, ed.] stressed that ELSl cannot survive
without immediate cash help, which Raytheon cannot provide. JDC [John
D. Clare, ed.] drew a precise time chart showing (a) Feb. 23 -- Board
Meeting; (b) Feb. 26-29 - inevitahle bank crisis; (c) March 8 -- we run
out of money and shut the plant".
Surprisingly, the text of the minutes that appears as Annex 15to the Memorial,
Exhibit B. has been altered, and the words quoted above have been replaced by
the insignificant words: "Both CFA and JDC stressed again the urgency of the
situation."
Moreover, the conclusive evidence that the liquidation of ELSI, wliich was
decided by the Board on 16 March 1968, was anything but "orderly", is given
by the company's balance sheet at that date. On 31 March 1968 the company
had outstanding debts totalling Lire 16,292million, of which Lire 4,855 million
was owing to preferential creditors, and Lire 11,435 million to unsecured credi-
tors4. To meet these debts, the company had assets whose book value was Lire
' SeeMemorial,Ann.31, 1,p. 278.
Sec Mernorial, 1,pp. 51K.
' Sec Charles F. Adam'sletter to John D. Clare,attached as Exhibit111-13to "The
Claim",but omittedin the Annexesta the Mernorial.
Mernorial.Ann. 13.Schedule F.17,053million, but whose quick-sale value had been calculated by ELSl's expert
accountants as no more than Lire 10,838 million'.
L\cn suppihin;. for the rdke ofdrgunicnt. rh~t c\er)thinf hdJ gonc ar p!.inncJ
h) ELSI. n:imely. ihnt thc \dIc of the .isscts hdJ madc lire IU.818milli<)n.. :iller
deduciinr the amount needcd Io p.iv the r>refcrentililcrcJiit>ri, the rciiiainrlcr
would oilv have been sufficient to oav 50Der cent of the unsecured creditors!
But if thiiis so, it is patently evident ihat khat is now presented as an orderly
and voluntary liquidation. decided by the shareholders in order to avoid further
losses, was in reality a desperate attempt on the pari of an insolvent Company 10
avoid bankruptcy by having ils creditors accept an amicable settlement.
The ELSl management were perfectly well aware of the real meaning of the
decision taken on 16 March 1968: "With the proceeds of the sale it was ELSI's
intention to satisfy al1the creditors in an amicable way Indeed, they also knew
perfectly well that in order to succeed in their endeavour they had to obtain at
least the tacit approval of al1 the creditors. If only one creditor had demanded
to be paid immediately and in full, bankruptcy would have been unavoidable.
This is whv the liauidation ol.n .rovided for the full oa.m.nt no1 onlv of the
priicrsntisl creditiirr hut :ilso of the oi ,niaIl crcditors ai it uaj st~icd. the
dangr ass that "[ ] :I?mdll trrcrponsiblc srrrlitor uould takc precipitotis
action u.hich uouM r3ise iormidablc ~hstaclir in ihc wa! of orderly liqtiid~tion"'.
Sush a r~sk~ppdrcnil) rcprcsntzd iisort oi niphtmdrc CorRaytheon indced.
deipite the f3;t thdl II had forniùll) linnuunc:d th~t it\iiiulJ ncver pd!. ELSI an
extr3 Iird. 11ininicdiüiil, drrdnacd IO IXJ! ELSl Lire 150 million ro \ilen~e ihc
more unruly among theSmall c;editorSS..
But the large creditors, who were heing asked to accept 50 per cent of the
amount owed them, were six banks which had outstanding claims of about 9,000
million against ELSI, of which just over a half was guaranteed by Raytheon6.
In the Memorial of the United States Government one reads that
"Raytheon reasonahly anticipated, however, that the bank creditors with
large unsecured, unguaranteed loans would quickly settle their claims at no
more than 50 per cent of this value as part of the orderly liquidation, as
such a settlement would guarantee prompt and suhstantial payment, as
compared with receiving little or nothing in bankruptcy7."
There is no telling whether ELSI's directors really were so sure that they would
be able to reach an immediate agreement with the banks: the fact is, that on I
April 1968, no1 knowing what the Mayor of Palermo was about to decree, the
-. .-
' Mernorial.1, p III~ l'.~in in<li<aiionof th~~r1tcn3iul.uued (or ihc diicrmindliun
01 ihc "r(ul:L-,.iia!ur.".>rc\Ir.niori~l.An" 17. 1.pp.184il uhr.ri'li< I.conipari,un
hciul.cnIIICdiErin1 itim, ln ihr.h~l:in;e\hcrt~nd tn ihclririimsic .lul;k-rdlc\;ilurtc.
ibidem, ExhibitA.
The hypothesisthat the "book value"of 17,053millioncould be realizedis no1 even
worth beinetaken into consideration,althoueh the United States Governmentis now
p. 186).butalsointhe~aytheon and ~àchleti ciai; of 1974againsttheltalianGovernmeni
this wasthe valuewhichhad been chosen for thecamputingof damages.
' See "The Claim", in/rop. 233 [p. 331.
lbid.
See Memorial, Ann. 17,1,p. 186.
For the exactfigures,secMcmorial, Ann. 13,Schedule E.
' See Memorial, 1, p.52. COUNTER-MEMORIA OF ITALY 11
parties held yet another meeting which came to nothing'. Yet the passage jus1
quoted from the Memorial is mentioned not only because it alleges that an
agreement between ELSl and the banks was a foregone conclusion, hut also
because it openly states that the banks had everything to gain by being content
with 50 De. cent of their loans because ~~~ch a settlemeni would eliarantee- ~ ~ ~
prompt and .,uhst:inii.ilp.i!mcnt. ;is compdrcd uiih rcceivlngIiiile or noihing in
b.inkrupi~,!"! This si:iir.mcntclearl! 1mp1ir.sthai irom ihe ter! momeni iiiirhich
the "ordcrlv" liuiiidiiiion of Kl.SI h.id bcen <le:idcd. the anl! rc;il orowcci for
the ciimpny uac cithcr h;iiikrupis! or dn "~riiic;ihlescttlenicnt" with the srsdi-
ior, And XIIihr. plr1ir.r ucrc perfccily uell :iwarr.oi thi: ELSI. Ra)ihci)n ~nd
the banks!
8. The requisition of ELSl's plant and equipment: its legal basis, nature,
justification and effects.-On 1April 1968,the Mayor of Palermo ordered that
the plant and equipmeni owned hy ELSl he requisitioned for a period of six
months'. This decision is the main ooint on which the charees made hv the
Governmeni of the United Siates against the ltalian auihoriiGs are hingéd.Il
therefore appears necessary to clariîy the nature. the content and the effects of
the MayorCsdecree.
We shall begin hy pointing out that under ltalian law the legal basis of the
decree is Article 7 of Law No. 2248 of 20 March 1865,Annex E (the so-called
administrative litigation Iaw)'. The article in question states that
"when because of grave public necessity, the administrative authorities must
dispose of private property without delay . . the administrative authorities
will proceed by means of a decree indicating the reasons, without prejiidice
to the rights of the parties".
This means thai the adminisirative authorities are empowered 10 "dispose of
private property" and therefore also to take requisition measures, provided that
this is justified by a state of "grave public necessily" and of urgency (there is
the need to act "without delay"); however, the parties mus1 be ultimaiely com-
pensated.
If the pnvate property concerned consists of immovahle property and it has
been requisiiioned in accordance with the above-mentioned law. there can only
be a requisilionin use4. As a rule, the extension of the requisition measure will
depend on the duration of the siate of necessity: in any case, the decree itself
must be accompanied by an indication of a time-limit (in the case in hand, this
was six months) which may he further extended upon expiry. Within this time-
limit, the authority can use the immovahle property, but cannot acquire it or seIl
it Io others. AI1this is implicit in the terms "without prejudice 10 the rights of
the oarties".
~he Jiifsrcnce hetween requisition in ucsand cupropri;itiori isclenr. expropri.i-
tion dcprii,es ihc pri\,aic indi\idu~I oi hi, riphi i~l'o\\ner\hip. uhi1,transicrrcd
IO the administrative authoritv exorooriating t.e vroperty. On the other hand,
rcquisition in iiscdeprii,es the ouner onl) of the useof ihc propcrty o\cr a ceriain
period oiiime. Undcr Italian law.chpropriaiion isrcgulatcd by speciticlegislaiion.
not;ibls Iaw Nil. 2359 of 25 June l8hS (on compulsdry c\r>ropriation in ihc
public-interest). and is also covered by a provision-in the Constiiution (Art. 42,
paragraph 3. according io which "private property, in such cases as are provided
' See "The Clairn",inJio.p. 233[pp.34-35].
' SeeMernorial, Ann. 33.
' Seeibid..Ann. 34.
' SeeSandulli, Manunle didirirroamminisrrurivo1,3thed.,Naples1982, p.789for by law and upon payment of compensation, may be expropriated for reasons
of public interest"); requisition in use, on the other hand, is covered by the
above-mentioned Article 7 of Law No. 2248 of 20 March 1865.
Three aspects of the content of the decree issued on 1April 1968by the Mayor
of Palermo deserve special mention: the provisions explicitly referred to, the
detailed reasons given and the measures actually taken. With regard to the first
aspect, it is noteworthy that the decree referred no1only to the above-mentioned
Article 7 of Law No. 2248 of 20March 1865,Annex E, but also to Article 69 of
the regional legislation governing local authorities, namely, Legislative Decree
No. 6 of 29 October 1955 of the President of the Sicilian Region'. Under the
heading of "orders based on emergenciesand urgency", the latter provision (para.
1)states that "the Mayor issuesemergency and urgent orders in matters of civil
works, local police and health for reasons of public health and safety". It thus
underlinesand definesthe Mayor's powersalso to take, inter aliu, urgent measures
in local police matters for reasons of public safety. The Mayor's authority to
dispose of private property on this basis was considered to be "unchallengeable"
(indubirabile) by the Prefect of Palermo when be was called upon to rule on the
appeal taken by ELSl against the requisition decree we are examining2. The
decree wasjustified on a number of circumstances: in the first place the decision
by ELSI to shut down ils plant and dismiss about one thousand employees, a
decision that was followed by the strikes called by trade unions with the support
of public opinion. Other relevant considerations were the damage to the local
economy, the strong interest shown by the press and the danger of lawand order
being perturbed. All these circumstances led the Mayor to form the opinion that
the conditions of grave public necessity and urgency specified in particular in
Article 7 of Law No. 2248 of 20 March 1865actually existed in the ELSl case.
As already seen, the decree issued by the Mayor of Palermo provided for the
requisition, for the duration of six months and "except as may be necessary to
entend such period, and without prejudice for the rights of the parties concerned
and of third parties", of the plant and equipment owned hy ELSI. The same
decree acknowledged the right of the company to be paid compensation for the
requisition, although the asscssment of such compensation was deferred to a
subsequent order.
The requisition decree did not deal with the measures to be taken for the
purpose of the temporary management of the plant; provision for this was made
by the Mayor immediately afterwards by means of separate orders. On 6 April
1968,the Mayor issued a special order entrusting the management of the plant
to Mr. Aldo Profumo, the managing director of ELSI, also "for the purpose of
avoiding damage to the equipment and machinery due to the cessation of al1
activities including maintenance"'. Alter Mr. Profumo refused to accept this
appointment and to carry out the tasks assigned to him in the interest of ELSI,
on 16April the Mayor wrote to Mr. Silvio Laurin, the senior company director,
to notify him that
"[.. .] in viewof the continuing absence of Ingegner Profumo, 10whom the
management of the requisitioned plant had been entrusted, 1hereby appoint
you to replace him temporarily in the same capacity with the same powers,
funclions and limitations. The choice of yourself isjustified by the need [..]
' See Mernorial,Ann. 35.
Seeibid A,nn.76.
"ee doc. 34. COUNTER-MEMORIAL OF ITALY 13
10ensure the co-ordination of management activities to safeguard the inter-
ests of government authoritics and the rights of third parties'."
Mr. Laurin accepted the appointment. Thc Mayor also appointcd Mr. Armando
Celone and Mr. Nicolo Maggio as his representatives to enforce his orders in the
...t.... .
9. lirecedcnt.~conccrntng ihc rcquiriiion of planis ordered by other 1iaIi.iiilocal
;iuthorities (1950.lYb6j. - An exanlindiion oi lialiari judiriai dcvirionr r.unicrn-
ing the rcquisiiion of induitrial plants during ihc )eür> 1950.1986indicaie.>ihat
the reauisition of wlantswas no1e~isodicin nature but was oftcn used to Drotect
e\i\tinb )oh\ in facing the ihrcai of closure. Undcr ihc circumsi~i~scs.itr
purpohc u,:i\ ihai oiprercniing the linsncisl Jit~culties ofccrt:iin :onip;~nicjfroin
having negativerepercussions on workers'employmcnt. Emblematic in this regard
is the well-known "Marzotto affair", which arose out of the decree to reqiiisition
a plant of Marzotto S.P.A. of Valdagno issued by the Mayor of Pisa on 25June
1968'. Another such case is that of a plant of S.P.A.Torrington, a Company in
liauidation which was reauisitioned bv the Mayor of Genoa in order to orevent
11'froni being clorcd down and tlie chployccs~from losing ihcir lobs4. .i ihird
case 1.;th:ii oi3 plan! brlongiiig IO ihc It:ili:in~Zuccheri Company, which uai
re\iui~itioncJ ior 30 Ja,. hv.ihc \l<iv<irof Chicii on 16 July 1974and hdndcd
ovèrto the Abruzzo Devclopment Akncy, which was given the task ofm:inaging
it soas to avoid the suspension of actiirity and thus to safeguard job stability5.
Also worth mentioning are the cases of Soc. SITE, whose plant was rcquisi-
tioned by order of the Mayor of Padua on 29 September 1974just as itwas
about to be closed down6and Soc. Manifattura dell'Adda. The latter company's
plant was requisitioned by the Mayor of Berbenno di ValteIlinain order to ensure
the continuity of ils productive activity, which wasconsidered to be esseritial for
the economv of the area7.
On othcr i>cc:i\ionsrcqui\iti<in ol'a compiiii! plan1 h:is hccn ordercd 50 ar 10
rvard OITthe nerati\c rcpcrcuh\ion\ on the cconom) aiid I,itv:ind order ciiuicd
by prolonged suipension of the Company'sproducti;c activities. This is ihc case
of Soc. Tentes and Soc. San Marco' whose plants were requisitioned in order to
safeguard the future activity of the plant in the intercst of local employment and
of Iaw and orders. Then therc is the case of the plant of Soc. SIDELM, requisi-
tioned by the Mayor of Brindisi on 14 September 1974for reasons of law and
order and to ensure the continuity of productive activity in a plant considered
essential for the economy of the area and the public interest9, and that of the
Felice Fossati cotton mills. which was requisitioned by the Mayor of Sondrio on
2 February 1975in order to ward off the threat to law and order due to the plant
' See doc. 35
> SLV d,,i 3j
' Srv dr~i,iunSi, 3OXh of iheCourtof C~rvaiion <>f23 Ociokr 1971tJoc Nu 23)
Scr.<lesirt.>nSo7?of theCounal oiSt.iicim IV. of 7 Fchr~iry 1978(duc Vci 29)
S<i J,~,,,cn\O 19Xofthc hhru,>oTrihunlc Amm,ni\iruiivoRrri<>"l r00 tk:cm-
ber 1976 (doc. No. 24).
Na. 26).decision No. 208 of the Coiincilof State, sec. IV. of 25 February 1975(doc.
' Seedecision No. 210ofthe LombardyTribunale AmministrativR oegionale of 30July
1975 (doc No. 27).
Sec rcspectivelydecisionsby the Prefectof Milan of 12 November1971,11 firo
Iruliono-Reperiorio1972).Reyuisi:ione. No. 7. and by the Prefect of Cremona of 28
November1975, ibidem (1976).RequisirioneN.o.23.
See decisionNo. 3 of the PugliaTribunaleAmministrativoRegionale of28January
1975(doc. No. 25). COUNTCR-MEMORIA OLF ITALY 15
and its occupation by ELSl's employees, the question of ihe effects ihat the
requisition had on the prospect of an orderly liquidation of the company and the
issue of whether the requisition actually caused the hankruptcy.
With regard to the first point, it mus! be recalled thai the plant had been
occupied by the employees since early March 1968. and not only afler the
requisition'. The claimant Government's allegation that the ltalian authorities
behaved in such a way as, if not actually to encourage the occupation, at least
to make it possible and subsequently to tolerate it2, is far from being true.
The only action which one wüy or another succeeded in calming down the
ELSl employees, who were exasperated hy the company's decision io cease al1
activity and dismiss al1ils workforce, was the requisition decreed by the Mayor.
Rightly or wrongly the employees saw this as an effective way of safegudrding
their oosition. This is whv. after the reauisition. the occuoaiion auicklv look on
a purely i)nibolic r'hardcicr nilh ;IIIilic uiirksrr nou iccling dirccily rcrponrible
(sr c\erything ih.ti h:lppcned insidc ihc iaci<iry. It1, a hci thai - as cilprcr,ly
rtdtcd :ils(i in ihr aho\,ç-meniiuncd dccision bv ihc Srihunal of Palcrriio un ?
February 1973 - the occupation noi only caused no asceriained damage Io the
equipment and matenal located in the factory but did not even prevent the regular
performance of the winding-up operalions.
With regard to thecompany's "orderly" liquidation plan and the effects of the
requisition on ii, itmusi be pointed out from the outset that ELSl was already
insolvent when the requisition decree was issued. The company, whose assets in
the estimation of its own management had a quick-sale value of no more than
Lire 10,500 million, had accumulated more than Lire 16,000 million in debts.
After its two shareholders refused to contribute further capital, the comp;iny was
forced to liquidate part of ils assets to meet its commitments when they SeIldue.
As both Raytheon and Machlett were to state in their 1974 claim against the
ltalian Government:
"At the end of the month of March 1968, the situation relating io ELSl
was as follows: (.. .)ELSl had run out of money and had no prospect of
receiving funds except from the sale of assets (.. .) Subsiantial payments
were due from ELSI, the rnaturities of which had not been exiended'."
The "orderly" liquidation decided hy the Board of Directors on 16 March
1968was therefore only a bluii. An "orderly" and voluntary liquidation presup-
poses that the company has suRcient assets to fully saiisfy its creditors'.
In the case of ELSl ii was common knowledge from the outset ihat in the best
oossible case the unsecured crediiors would receive onlv 50 ocr cent salisfaction:
k;id une of thcni rciurcd the setilcm~.iiiand rr.quc.ted 'iullplymcni. b~nkriipiz)
\i,>ulJ ha\<:inc\itahly cn3iied. Under the,c circumi1;inies. the EI.SI managrment
was under an ohliraiion. also accordine to criminal law, either to file for bank-
ruptcy or to form2ly propose an amicable settlement to al1the creditors
only afier the Mayor6.-hean Iialian governrnentofficial- had arsumedcurio<lyof thean
plant" (Memorial. 1.p. 101)coniradictsevidence.
See Memorial. 1.on. 100ff
' .ïht C'kiim".,"h pi2,33[pp 15.361
''Sre ,\ris 6 and 160of thr Italian R.inlrupi;? I.au (dx So ?II ;iccordingid uhich
ii iorimdri~,~rn~ ~~ ~~~ ~lirnicntrrnriwiiirliio reauciiihedecl3raii.mrifilsbnnkruniii
o;a~fernativelyto propose an amicablesettlemenito'ihecrediiorr.~c&rdingly.~rt: 217.
No. 4. ofthe same Law siatesthdtthe debtorrhall be seniencedfrom 6manthsto 2years
ofimprisonmeniifhr hasaggravatedtheeconomicsituationbyÿbstainingfromptiiioning
for the declaratianal bankruptcy orbyother seriousnegligence. The truth is that ELSl had actually beenin a state ofvirtual liquidation already
from the beginning of the year (and ils plant had beenoccupied by the cmployees
ever since early March). If it was not possible to seIl on the open market al1or
part of ils assetsat the prices fixed in the company's "orderly" liquidation plan.
the fault did not lie with the Mayor's requisition, which was issued only on 1
April 1968.The fact is that even before this event no one was willing to purchase
at those prices the assetsof a company which wds cledrly insolvent.
In any case, it mus1 bc ruled out that the bankruptcy was a consequenceof
the reauisilion. as is claimed bv the Government of the United States'. In this
conneïiion. il nia) bc r~iliaeniii~ rc.';~llihc st;iicnicnt ui the Couri 01.Appeal oi
P:ilcrnio in the .ibo\c-mcntioncd dcctsi~inoi?3 N<)\rmhcr 1973
"The fact that the Company was insolvent during the time immediately
prior to the Mayor's intervention - in connection with which we recall the
manv and noisvdemonstrations which this eavc rise 10. as we are reminded
hy thcCouri -1s suficicni to ruleoui anycauial link hciuccn ihe subscqueni
rcquisiiioning ordcr anJ the Conipnn)'~ hankrupicv and thai the Compïny',
statc of insol\cnis w;is decisi\e .inJ suttirizni c.iuss hr tir f.iilurc I~lri. 5.
Bankruptcy ~aw)'."
12. The appeal against the requisition decree. - The requisition decree of
1 April 1968 wds appealed against by ELSl to the Prefect of Palermo 18 days
later (on 19 April 1968). A much shorter time was to pass between this appeal
and the bankruptcy petition, filed with the Court of Palermo by the company on
25 April. Therefore, while the appeal against the decreewas pending, the bank-
ruptcy proceedings were opened. At the same lime increasing efforts were made
to find a definitive solution to the problems of the company. It can therefore be
said that. from the month of Aoril 1968onwards. thrcc oarallel events were in
progrerj thc irppedl prusecdings ag:iinsi ihc rcqui\itton dccrcc. ihc hankruptc)
oi the compïny. and the rcscueoperaiion in uhich IKI bc~.ïnie niorc and niore
in\ol\cd. We shiill dcrcribc c;ich of thcar r\,ent\. takina-ihc inicrïcti<ins iwiuccn
them into account.
13.The decision taken by the Prefect of Palermo on the appeal. - The ELSI
appeal to the Prefect of Palermo requested the setting aside of the requisition
decree. It was cldimed on the one hand that the ldws on which the requisition
was based (Art. 7 of Law No. 2248 of 20 March 1865, Ann. E; Art. 69 of the
Legislative Decree No. 6 of the President of the Sicilian Region of 29 October
1955) had been violated and, on the other, that the Mayor had misused his
Dowers. It should be noted that the Prefect's decision of 22 Aueust 1969reiected
ihe arguments concerning the first issueand thus ruled that theabive-meniioned
laws had been corrcctly applied. In particular, the Prefect pointed out that
"it is undisputcd, in caselaw and legal doctrine, that the Public Administra-
tion is empowered by the above-mentioned Article 7 to disposeof the private
orooertv whenever ihe necessitv exists to face a situation of actual and
immin&t danger for a public interest (public health, public order, etc. . ..)
and therefore the grounds of an urgent emergency are given".
' See Mernorial.1,pp.83-84.
Mernorial,Ann. 81, 1,p. 382. Art. 5 of theabove-mentioncdBankruptcy Law states:
''An) enircprcniur ina rilie of inrol\enc) rhaii br.Jzcl~rcdb~nkrupi Ihe ,id!:<>i
in<ol\r.nc)ir rcvedledhycases oidsbult orb!uihrr tiiiirn~l Idil,uhi;h inJi;~ic ihdl
ihr Jehior 0.no longerxhlc io mcelhir obligaiiunsrtgulïrly " tlowcvcr. thc I'ri.ii.ct riilrd ih:it the dccrec appealed againri ua, no,crtheless
iIlsgitim;itesince. In his iieu "the purpose the go:ilIO uhich ihc rcquisition u,ar
dircci'.J s61uldno1bc actu.~ll, ashicvcd hs the order". in other uurd~. the M3\ùr
had iiot i.ikcn :icciiuni oithc I'aih:ithccompïn) c<>ulJnoi .xiniinue itj:icti\ity
unle...thcrc iierc intcr\cniions ap~hlc of sol\,ing iti tin;inrial and industrial
prohlcms This uas ihc onl) rea\iin uhs thc Prcfe:t uphcld ihc xpnc.fl..ind sci
ihe requisition decrec aside.
14. The delay of the Prefect's decision. - One of the charges made by the
Government of the United States against the Prefect's decision is that it was
delayed. It was in fact delivered 16months after the appeal taken by ELSI. The
claimant Government contends that this delay was quite unusual for normal
ltalian practice and that al the time the requisition was declared illegitimate. it
had already irremediably produced its efiects'.
With regard to ltalian practice the Government of the United States relies on
an affidavit by the lcgalcounsel of Raytheon2, to the effect that the average Lime
taken by Prefects to decide upon appeals against requisition orders issued hy
Mayors is about one month. The Chief of StaR of thc ltalian Ministry of the
Intenor has instead declared that the average tirne is about one year3.
Quite apart from this, three significant circumstances must be pointed out. In
the first place, it must be recalled that, in accordance with Article 5, paragraph
5, of the Consolidated Law No. 383 of 3 March 1934(Municipal and Provincial
Law),
"[alfter 120 days from the date of the filing of the appcal without the
authority with which the appeal has heen filed having ruled on the said
appeal. the appellant may request the authority, aller notifying it by means
ofa petition, that the appeal be ruled upon4."
In the case in hand a request was made to the Prefect only on 9 July 1969and
the appeal was decided upon about a month and a half later. In the second place
it should he pointed out that the requisition had already ceased to have any efect
on 30 Seotember 1968. that is. ar the date of exoirv of its normal terni of six
months hy thii date th? ritiri., oi the requisiiion'~nd ihos01 the b3nkriiptz).
decldrcd on 16 M;i? 1969. hüJ :ilrn,adyIon&o\crlappcd IS iar as thc ~\.~il.~bilil)
,>ithc pl:ini and ils equipnieni ucrc ionccrnr-d Thercfdrr. c\,cn iithe Prci'cii hsd
decided on the appeai figainst the requisition within a rnonth, ELSI would not
have anyway heen able to make free use of the requisilioned property. Purther-
more, if the requisition was to be regarded as the cause of the bankruptcy, as the
claimant Government contends. the relevant delay in the Prefect's decision did
not go beyond the seven days elapsing between the presentation of the appeal to
the Prefect (18 April) and the date when the hankruptcy petition was filed
(25 April). In fact, from the point of view of the availability of the plant it would
have obviously been of no use to succeed in an appeal to the Prefect after the
hankruptcy petition had been filed.
Lastly, it mus1 be emphasized that the Prefect's decision had the only effect
that it was actually capable of producing, that is, il created the preliminary
conditions needed for the receiver in the bankruptcy proceedings to take action
against the Ministry of the Interior hefore the Tribunal of Palermo for the
purpose of claiming damages for unlawful requisition. This claim was brought
' See Memorial. 1,p. 99.
Secibid. p. M.
' See doc.30.
Seedoc. 20.four months later, on 29 December 1969,and, as has already been mentioned,
was successful '.
15.The episodescharacterizing the bankruptcy proceedings: 1968-1969.-Let
us now examine the episodes characterizing the bankruptcy proceedings, which
opened, as we have seen, with the decision of the Tribunal of Palermo of 16May
1968upholding the petition filed by ELSl on 25 April.
By way of introduction, it is to be recalled thai, under ltalian law, the judicial
authorities concerned with bankruptcy proceedings (i.e., the bankruptcy court
and the delegated judge) have the statutory aim of ensuring the best possible
satisfaction of the interests of al1the creditors through the liquidation of the
bankrupt's assets. For his part, the receiver,in his capacity of public official,acts
as a close collaborator of the delegatedjudge.
The Government of the United States casts somedoubts about the obiectivit,
oiihc authoriiis, dc.ilin$oiih ihs ELSI hankrupte) Ilfuriher conictids ilidithe
Italian Gu\crnnieni 'discour~ged prii..iie biddcrs. bo)coiicd ihe duciions iircli,
and worked out special arrangements for a piecemealiake-over directly with the
bankruptcy authorities"'.
In aciual fact, three of the auctions called by the delegated judge (held on
18January 1969,22 March 1969and 3 May 1969,respectively)were unattended
and only at the fourih auction (held on 12July 1969)did ELTEL, a newCompany
of the IRI-STET group, make a bid, which was accepted in the absence of any
other bidders. This in no way implies that irregularities were commiited by the
ltalian authoriiies. Any bidders interested were invitedto participate as is shown
by the fact thai extensive publicity was givento individual sales announcements
published also in the foreign press (see the advertisemenis in CorrieredellaSera,
Sole-24Ore. Il Globo, Financial Times, TheNeir York Tintes,FrankJiurreA r llgem-
eineZeirung,Le Moiide, Le Soir, De Telegraaj,The NilioneizaSl~imbun)'.
At the beginning of April 1969, that is between the second and the third
auction,the delegatedjudge of the bankruptcy court, at the request of the receiver
and with the support of the majority of members of the creditors' committee,
authorized the lease of the ELSI plant to ELTEL for a period of 18 months.
Raytheoncontended thatthe leaserepresented a prejudiceIothe creditors because
il made in fact impossible a sale to third parties other than ELTEL of the plant
or of individual seoarate lines4. However. the Tribunal of Palermo. in~.eiect~,~~~
ihis conicntion. did no1 hil tiipoint oui th;ii ihc Iwhc \va\ îciuall) iid!an!~geou~
for ihc acdiiors since.Farirorn ni;ikingthe haleoiihc plant impossible. 11aaudll)
m:iJc the adleea\ier. in ihai FI.TEL $vasunJcr uhlifiition Io m.iini:iin rhc iil.ini
in perfect efficiencyand to carry out al1 the repai;s and replacements die to
normal Wear and tear5. No appeal against this decision of the Tribunal of
Palermo was taken by Raytheon.
16. The sale of the suoolies and of the ELSl olant. - On 5 Mav 1969 the
bankruptcy judge authorked the sale to ELTEL 8f the maierial exisung on the
production linesat the price of Lire 105million.The Government of the United
States now describes this operation as a sell-out, by arguing thai the price paid
by ELTEL amounted 10barely 48 percent of the inventory valueof the material
in question6. However, it fails to consider that while judicial valuator Mr. Di
Benedetto had indeed assigned an inventory value of Lire 217 million to the
' SR Mernorial.Annr. 79-82.
' See "TheClairn".Exhibit111-19n ,o longeraltached IO theMernorial.
See Mernorial.Ann. 62.
' SR ihid.,Ann. 64, 1,p. 342.
See ihid.1,pp. 61-62 and 87. COUNTER-MEMORI A L ITALY 19
material in auestion. ELSI itselfhad oreviouslv valued il at onlv Lire 193millionL.
Furiherniorc. ilmu.[ noi bc o~erlookcd ihsi ihc recci!cr him,cli. in his rcquesi
foridle ~uihuri/:iiton, p.)iriied oui 1h;iithc mxirrial u;is niore [hiin irnc?cJr old
and therefore hard to~market. and that ils removal from the ~roduclion line
would further reduce its value2: Lastly, if the operation was trulybo suspect, why
did Raytheon merely express its reservations at the meeting of the creditors'
committee and not appeal to the court against the authoriraiion given by the
delegated judge?
On 12 July 1969 the fourth auction for the sale of the ELSl plant was held.
The plant and equipment were put up for sale at the starting price of Lire 3,200
million. and the suoolies. excludina raw materials and finished vroducts. torether
with the semi-finiihed products fbr semiconductor production, at the :iiarting
pncc of Lire 800 million.
The only bidder at the auction was ELTEL, to whom the whole lot was
adi.~icate~ ~ ~ a total ori.e of L.ire4.006 million. Accordine 10 th- claimant
(ioicrnnicni this iv;i.a ridic~lousl) luu priic th31 ELTEL :illcgcdl? manlged io
impose h) \irtLe oi the ïaci that IIiias .ilrcad) in rcnting of the pl;ini. Allcgcdly.
ihc Ii.ililin <io\crnment ihu, richicved 11s;!in1of ha\ine IR1 11urcharethe FLSl
-
~sscts'.uiih~~uipsying 3 irecl) rnarkci-dctcrinined pri~c"'. In this conneciion. 11
1% nccerrar> is ïlariiy .Igrus misonder~ianding. Ai thc stiigc ihxi m.iitcr\ hdd
rcachtd 13, this iicisthe i<iurili3uition :ifter the lir\t thrce h;tJ bccn unatrrnded)
it wa~ ~;~ ~f the auestion that the sale of the olant could take olace accordin;
IO a ïrccl) m~rkci:iler:rmincriIirii~~"t.he que\i;on isthereljre no1to icc \.,hcihs
E1.I El. had purcri.ired ..:II le<>than P~irni.irkct price" (ir ai 3 "redu~cd price"'
but onlv whether the orice oaid could be considered reasonable in the iircum-
. ~.~
17. The value of the property in question and the price paid hy ELTEL. -
The first thinr to establish is the value of the oroverty in question according to
the various pÏevious estimates. The claimant '~oiernmeni refers to an alleged
"book value" of Lire 12,000million5 although this is a totally unreliable figure.
This value is based on the last balance sheet drawn up by ELSI more than one
year earlier (31 March 1968) and without the support of regular accounting.
Furthermore, it refers, in addition to the plant and equipment, to al1the supplies
existing at the time, while the supplies acquired by ELTEL at the auction were
very limited, as many articles had been previously sold by the receiver and also
the remainder was exclusive of al1raw materials and finished oroducts. as well
2, remi-fintihed pr,>ducts for ssnii~onilu~~lorrO . nl) iu'o ertimatci (:in hz taken
inio c~inrideraiionu~ihrcieren~e ti)the \aluc oithe a,ssis in que>iion: [hi.quick-
i:ilr value. tiorked oui hy ihc ELSl iii.iii.igcriieniitscli bciorc Jmiclinz ii!uind
up the Company and thcjudicial evaluatioÏncarried out by Ingegner Puglisi on
12October 196S6.
If we take either of these two estimates as a reference, the value of the assets
actually purchased by ELTEL hasically corresponds to the price adjudicated al
....---..-.O~ ~
All that remains to be done at this point is Io examine the prices set in the
various individual auctions and to see how the final figures were arrived at. The
starting price set for the first auction was Lire 4,650 million (for plant and
'Sec "The Clairn",in/rnp,. 233 [p.57)
See Mernorial,Ann. 69.
' Mernorial, 1,p. 63.
Mernorial, 1, respectivelypp. 85 and 87.
' See "The,9Clairn",Exhibit11-41, no longerattached20 ELETTRONICA SICULA
equipment alone). For the second auction the starting price was fixed at Lire
6.223 million (Lire 4,000 million for the plant and Lire 2,223 million for the
supplies).A fewdays earlier, ELTEL had sent the bankruptcy judge a documented
valuation made by the Siemens technical office, giving the current value of the
ELSl plant and equipment as not exceeding Lire 2,770 million'. The judge
maintained the previously fixed price and the auction was unattended. The
starting price for the third auction was fixed at Lire 5,000 million (Lire 3,200
million for the plant and Lire 1,800 for the supplies). ELTEL made il known
that il was willing to pay the requested price for the plant, but that in no case
was il willing to bid for the supplies, which il considercd quite useless2. The
delegated judge nevertheless remained firm in his decision to auction off plant
and suoolies. The third auction was also unattended. ELTEL relented and. on
27 irh'l. ii1l;irmr.Jihc i1clr.g.iir.Jjudgc ihituould hc prcp.ireJ io purch;i,r.
the entire loi :XI;i pricr. of Lire 4.1ltl1million' Aiter rcquestlng tirid <iht.,ining
ihr..ipriroi;il ofthe rccciter 3nJ thr.irr.ditl>r,iiimon~ the ILit~r.oiiI\ the Rr0lhr.011
represéntativeexpressed strong reservations); the delegated judge set the &ling
price for the fourth auction at Lire 4,000 million (Lire 3,200 for the plant and
Lire 800 for the supplies). It should be noted that this price only apparently
coincided with that offered bv ELTEL. as the latter re~~rred to al1the suoolies ..
coni.iined iiiilic sturer. whilcihe lin 3uctioned b! ihejudgc e.\cluJr.d .il1ihr. r3a
in~leri.il~.ind tini*hc<lprod.i~.ti4;.iicll a\ wmi-tinihhcdpr~,,luctsior jr-niizoiiduc-
tors. Nevertheless ~aytheon appealed to the Court against the delegated judge's
order, but ils appeal was rejected by the Court on 20 lune 1969'.
In view of the above considerations it can be concluded that the price paid by
ELTEL at the bankruptcy auction was perfectly reasonable. In this context, it
may be recalled that, in the 1974Claim put forward against the ltalian Govern-
ment by the applicant Government on behalf of Raytheon and Machlett, it was
contended that the price paid by ELTEL was only 300, or at most 500, million
Lire less tban the estimated realization value of the property in question5. This
is an undersiandable difference considering that ELTEL was purchasing at a
fourth bankruptcy auction, after three auctions had heen unattended!
18.The role played by IR1 from 1967to March 1968. - It may be useful to
add some explanations concerning the role played on several occasions by IR1
in the attempt to rescue ELSI.
A fact of considerable interest for a correct understanding of the matter is that
IR1 (Istituto per la Ricostruzione Industriale) is a public enterprise which has
numerous interests in orivate comoanies. Bv l~w i~ ~ ~ ~ ~t in accordance with
the principle of profita'bility(see Ârt. 3 of iaw No. 1589of 22 December 1956)
and enjoys full managerial freedom. Naturally, its legal personality is distinct
from that of the ~tateTOniv in exceotional cirëumstances. when it is-a matter oi
protecting general interests such a; the safeguarding of employment, can the
Government give IR1 some directives (e.g., the purchase of unprofitable com-
panies). However, even in such cases the decisions made by IR1 are attributable
to IR1 itself and not to the State.
' See Considerationsby SIT-Siemensai 5 March 1969, containedin "The Claim".
Exhibit111-32o ,mittedin the annexes to the Memorial.
Seethe peiitianof 16April 1969 annexedto "TheClairn".Exhibii111-33o ,mittedin
the annexes to the Mernorial.
'See Mernorial,Ann. 70.
See the c.o, ofthedaim and the decreeannexedto "TheClaim" as Exhibit38.but
lateromitted.
"The Claim", inpu,p. 233[p.661 COUNTER-HEMORIAL OF ITALY 7.1
In the case in hand, the suggestion that IR1 should intervene was first made
by Raytheon. It should be recalled in this connection that, because of the serious
crisis affecting ils Palermo suhsidiary, as early as Spring 1967 Raytheon had
reauested that IR1 should ourchase an interest in ELSl and ihus help Io imorove
its.situation. The request was rejected for a very simple reason. ~ccording io the
reorganization plan drawn up at that time by the new ELSl management, the
company was to clrpand mainly in the ielecommunications sector. that is. in a
sector in which several companies belonging to the IR1 group were already
operating. ELSl would therefore have become a direct competitor1. IRl's re-
sponse in early 1968 was to take a firm stance:
"IR1 and Finmeccanica point out that in this new ELSl report there seems
to be little justification for modifying the opinion on the ELSl situation
which th~, c~o,essed ~t~ ~e or,vious meetine wiuh Ravthcon, The financial
support to br. pri~viderlhg ihc proposcd neu slipital 01'6 billion IIICi, no1
ln itsc~fsutticicni Io imr>roi,r.<ignlticlintiythc b:islc opcrJtlng p~~iiilonof the
company, which remains in an-extremel) serious condition notwithstanding
the praiseworthy efïorts made by Raytheon to achieve a sound basis of
operations [. ..] IR1 and Finmeccanica point out thai within the IR1 Group
there were no concrete possihilities of ensuring a direci market oiitlet for
Raytheon-ELSl's production. The only exceptions to this statement concern
areas of marginal interest, or areas in which oiher IR1 companies. which
already have substantial problems of their own Io hc solved, are currenily
operating [. . .If."
It is true that IR1 did not exclude the possibility of a reappraisal some lime in
the future.
"However. IR1 desires to ooint out that. even thoueh - with ereat
rcgrci - itcaiinot açcept Kliythcun'r rcqucst :inihtc lime. itremliin*possible
th:ii a I:iier rcqucsi bv Kayihr.i>nmighi reccitc more fitiorlible c<~n\idr.rliiit)n
i 1'"
Nevertheless, this was said out of pure couriesy, and is explained by the (:xcellent
relations till then prcvailing between IR1 and Raythcon.
At the timc the ltalian Governinent refrained from putiing pressure on IR1 Io
ohtain ils involvement. The situation changed consider;ihly aftcr ELSl's decision
to cease ils activity and to liquidale ils assçis. ELSl's dcspcraie financial straits
clearly indicated ihat only a large-scale intervention could avoid collapse with
the consequent loss of more than one thousand jobs. Since the Sicilian Region
had immediately siated the condition that any financial aid on its part aould he
dependent on IR1 participation in the rescue operaiion. the Central Government
now made ii clear that it would do everything io convince IR1 to accept.
'See"1967 Report". whichexpresselystaies.at 1.p. 215:
"The ihirdpossible group. whichwouldceriainlyrepresenithe major build up of
rieurproducts. could come from governmcni-owncd agendes in Italy 1.. 1.Ar an
example. a largepart of the cammunicaiionsequipmcnt for the ltalian PiTand the
ConcesnionaryCompaniesismanu~dctured by IR1Campanics [...].Thereiscertsinly
everyreasonwhyfuturetelcphoneswitchingequipmeniand othercammunic;itions for
use in Sicily;ind Suuthcrn Iialy could and shouldbe made in Sicilyin R;iytheon-
ELSI."
SeeMernorial. Ann. 15.ExhibitC. containingthe summiry of the ialks held at IR1
on 4 January 1968,betweenIR1 Management,the Chairmin of Finmeccanica and Mr.
JohnIbidem.arc.22 ELETTRONICA SICULA
It should be noted. however. that if the ltalian Government had reallv intended
itih:i\c IKI hu! up the ELSI ïacior) chc;ipl!. tlic c:i>~ru:,) do $0 uoiild h.iie
hecn to rtjcct I<;i!ihcon'\ dc\pcrste rcqiiejtr for fiiiids 3nd Io Ici FISl's Tin~iiaxl
conditi<~ni~icierior.itcuntil h~nkrupic) b:caiiic ins\itxhle .Andif.3s \r.ia..tuill,
to happen, the shareholders of the iompany refused to come 10terms with realiti,
bankruptcy could easily have been requested by one of the creditor banks.
Instead, the behaviour of the ltalian Government was quite the opposite: it
immediately declared its availability to come to ELSl's help and even when the
ELSl shareholders tried to force its hand, ignoring the company's longstanding
insolvency, and pretending to carry out an orderly liquidation, it continued to
seek a solution which would beacceptable for al1concerned. This would indeed
have been a peculiar attitude to adopt for someone pursuing the diabolical aim
of trying to take property for the benefit of IRI! Nor could it be claimed that
the first step in this direction was the order to requisition the factory, which was
alleged to have caused ELSl's bankruptcy and al1the ensuing events. The first
reason for this is, as already said, that it was not the requisition order which
caused ELSl to go bankrupt as the company was already insolvent. ln the second
place the requisition was evidently a simple emergsncy measure, taken mainly for
the purpose of avoiding any possible disorders due to the dismissal of ELSl
employees decided by the company management on the previous day. Moreover,
the fact that al1parties concerned considered it to be little more than a temporary
nuisance is shown by the fact that negotiations for the public rescue of ELSl
continued without slackening even afterwards and that ELSI itself allowed 19
days to go by before lodging an appeal against the Mayor's decree.
The truth is that the impossibility of reaching an agreement concerning the
timing and procedure of IR1 action in favour of ELSI, which was then recom-
mended by al1 concerned, was not the fault of the ltalian authorities but of
Raytheon. Raytheon was perfectly aware that the ltalian authorities would never
accept that ELSI's activities ceased overnight, leaving more than one thousand
employees jobless. Taking advantage of this fact, Raytheon continued to act as
though the ELSl crisis was none of its business and as though it was the concern
of the Italian authorities to provide for the company and its creditors.
19. The ltalian authorities' proposal for a settlement in March and April
1968. - At the end of March 1968, that is, after ELSl's decision to cease its
activity and to proceed to an "orderly" liquidation, but before the requisition
decree, the ltalian authorities asked Raytheon to reopen the factory and not to
send the dismissal letters as announced. In return the Government would pay
the wages and shoulder most of the operating losses, until such time as a public
company could open ne otiations with ELSl for the purchase or lease of its
assets. Ravtheon refused k.
The .;inic prop,x~1a3s rencired IOthecuinpny one nionih Itiicr.hui Ra)thcon
Iig:iinrcfuscd. Thi, tirnc. hi>uc\cr. its.iiccliiancc iiauld h;i\c ciii:iiled the ininicdi-
ale revocation of the reauisition order. w-hichthe Mavor of Palermo had in the
meantime issued, as wéllas the pledge of the 1tal;an authorities that, once
productive activity would have been resumed, by means of a special management
company to be set up together with the Sicilian Region and IRI, "everybody,
including the Region and IRI, shall be ready to help Raytheon and in the
meantime to liquidate ELSI through a useful sale in the shortest possible time"2.
In an attempt to justify the undue intransigence of Raytheon, the applicant
Government now claims that, by means of this proposal, "[alfter having requisi-
'See Mernorial,Ann. 15,Erhibit G. 1,p.181.
' Seeibid., Ann. 38, 1,p298; see alsoMernorial,Ann. 37 COUNTER-MEMORIAL OF ITALY 23
tioned ELSl's plant and other tangible assets, Italian authorities pressurcd Ray-
theon Io reopen ELSl at Raytheon's own expense"'. In actual fact. the
esiablishment of the new operatingcompany would have required no1the paying-
UD of anv new ca~ital. but merelv Ravtheon's willineness to cover 40 Dercent of
the probable ope;ating losses, while the remaining 61 p0 rcent would be covered
by the Region and IRI.
However. ihe crucial point was a different one: Raytheon, alihough it had
made oui ihai it inte~~ed to oroceed with the "orderlv" li> .daiion of-~~S~. ~.
knew very well that only an agreement with the banks would allow it io avoid
having Io honour the guarantees extended to ELSI. And since, up to rhat tirne,
the banks had shown little inclination to come to terms with Raytheon, it may
be concluded that the latter had every interest in allowing the situation to worsen
in the hope that. faced with the prospect of losing everything, the banks would
soften thcir attitude. These appear to be the real reasons why Raytheon refused
the proposais made by the ltalian Government. The fact that, six days later,
ELSl filed for bankrupicy with the Tribunal of Palermo, also appeared as an
attempt 10 force the hand of the banks, which had previously seemedrcluctant
to acccpt a negotiated solution. Nevertheless the ltalian authorities continued
their efforts to find a satisfactory solution for al1concerned.
During the same period, the President of the Sicilian Region. Mr. Vincenzo
Carollo, again according to the Government of the United Siates', threatened
the Rayiheon manügement because of their refusal to rcopcn the plant. In îact,
in the attempt to Savejobs. President Carollo merely made a few reasonable
predictions and several personal remarks. So when he stated that
"[nlobody in ltaly shall purchase, that is, IR1 shall not purchase neiiher for
a lou, nor Tor3 h;gh price, ihc Rcgii)n$hallnot punh:ise. priwie rnicrpriqcs
sh:lll no! pkrchasc 1.. thc Rcgion and IR1 and iinybody el,c uho has :in!
p<i$ribiliiyio infliicncr.ihc markci irilrcfusc in ihc mort abrulutc inÿnncr
to favor any sale while the plant is closed,"
he announced perhaps somewhat undiplomatically soincthing that was really
quite obvious: namely, thai the ltalian administrative authorities would not view
with favour liquidation plans such as tbose envisaged by ELSI. as thcy were
incompatible with any realistic reorganization plan. But also the furiher "threat"
thai
"[tlhe banks which havc outstanding credits for approximaiely 16 billion
lire. cannot and will not accept any settlement even at the cost of dragging
the Company into litigation on an international level[. ..] It is obvious that
every attcmpi will bc made (even at the cost of long litigation) io obiain
from Raytheon what is owed by ELSl [. ..y
is no1a1al1strange. In fact. it isonly to beexpected that the banks would aitempi
to recovcr iheir loans to ELSl also from Ravth,on seeine that the latter held 99
percent of the equiiy. Al1the banks actually claimed payment of the ËLSI debis
from Raytheon. but ihose claims were rejectedby the ltaliancourts3.This despite
' SecMemorial.Ann. 47.
Cf. Memorial. 1.pp.55-56.
' See. in pÿrticular.Court of Cassation.decisionNo. 5143of 7 October 1982(final
iudnmeniaeriinstthe Cassa CentralediRis~armioVitiorioEmanuelel:CourtofCassation.
decTsionNo.6712 019 December1982(finaljudgmentagainrt the Bancü Commerciale
Italiana):CourtofCars~tion.decision No. 2879 of9 May1985(finaljudgmentagainsithe
CreditoIiÿliano).The textsof the threedecirionsare attachedas documents Nor. 41-43
IO theriresentCounter-Memorial.24 BLETTRONICA SICULA
the existence of a number of authoritalive doctrine and decisions which claim
that the principle embodied in Article 2362of the Civil Code, according io which
a sole shareholder is liable for the company's debts in the case of inx>lvencyl,
equally applies whenever an insignificant number of shares is being held by
fieureheads or controlled comoanies'. Then there is the finalremark bv President
<';rollo ihai "[iln iheeicni thlit ihc plant sh;itxhcpi cl<>sed[ . ] ihc~cquisiiion
shall bc niainiaincd ai lc;isi until the coLrt%uill hate rc\ol\,cd the case Months
sha11co h) I 1".Dcspitc ihc cffJris by thc LlniicdStates <i<,icrnmcni' IO show
that this was a ihreat io maintain the ;equisition for an indefinite period, it was
actually a prediction of what could have happened, but in fact did no1occur as
ihe eiïects of the requisition decree expired after six months.
20. Thc attitude of the ltalian authorities in the following months. - On
25 Iuly 1968the Minister for lndustry and Trade announced in Parliament that
two measures had heen adopted in favour of ELSI. The first, of a temporary
nature, consisted in the pledge by the Sicilian Region to continue to pay the
employees'wagesfortwo months afterthe company would have resumed activity;
a total of Lire 700 million was appropriated for this purpose4 The second
consisted of the establishment of a management company hy the Region and
other public agcncies which wouldallow productive activities to he resumed until
such lime as the financial problems of ELSl could be finally resolved, if possible
through setilcment out of court
The true objective of the ltalian authorities thus remained negotiated settle-
ment. For this ouroose contact was resumed with Ravtheon and. after a number
of nicciings hclb d;ring the Summcr. itsccmcJ ihat ai Iigrccmcntu;isjusi round
ihc corner: an IR1 Gruup company wuuld piirchasc ihc plant a, iiwas. withuui
ihc suiinlics (ic.. onlv the tixcd assei+i for ihc pricc of Lire 4.0110million Thcsc
funds;plus the revcnie from the sale of the remaining company assets, would be
used to pay the costs of bankruptcy and the secured creditors in full. as well as
40 per cent or even 50 per cent of the claims of the unsecured creditors, while
Raytheon would no1have to honour the guarantees extended to ELSI. However,
on 14 October, after an eventful meeting held in Rome ai the Ministry of the
Budgei and Planning. the parties separaied without reaching an agreement.
The United Staies Governmeni now claims, on the basis of evidence riven -v
Rayihcon's counsclO.ihai ihc Italiaii Go\crnmcnt u?< cntircly rrspunsiblc for
the hreakdown in negoiiaiions sinse. for un\l)ccificd "poliiical rcasons".II"had
dcridcd to allow IR1 to iakc otcr ELSl's ;ii<cisu~th\iui s crediior scitlcmcni".
This is completely unirue. The negotiation of the ahove-mentioned agreement
came io grief no1because of the Italian Government (which had no cause to do
so) but because of the creditor banks, for a very simple reason: the banks, who
might have been willing to accept 50 or even 40 per cent and to free Raytheon
from iis guarantee obligations, realized that the ELSl asseis were not enough IO
pay such a percentage. The assurances to the contrary given by the Raytheon
management7 did noihing to change this. In fact, the Raytheon estimates were
based on the quick-sale value of the ELSl assets according to the valuation made
by the company management itself six months earlier. Already dubious ai the
' Doc. No. 18.
See,among others. Bigiavi. L'imprpndirore oceulro,Padua, 1964.pp. 185et seq.;
Asc'rSeeMemorial.1,i<p.56.0).1.11 14:Ferri. LeSocierà.Turin. 1985.pp.390el seq.
Seedocs. Nos.37-39.
' SeeMemorial.Ann. 46.
Seeibid.Ann.29,1, p.246.
' Seeibid.. 1p.58. COUNTER-MEMORI AFL~TALY 25
fime they were made, these estimates were even less reliable six months later, in
full bankruptcy proceedings.
On 13November 1968the Italian Government issued a special presscommuni-
quéthat
"[wlhilethe STET Group remains committed to build a newplant in Palermo
for the oroduction of telecommunication vroducts. the IRI-STET Grouo.
~rfc'd hy ihc C;o\crniiicni. 3licr ihc cx.iniiniiioii oi altr.rn;iii\c .oliiii.>n\
-hich pro!cd iini':a~ihIc,,iatcd 11,\~rIlii~gnc~1) 1nl:rvenc ln rhc t~kc-,~\cr
of rhe ICISI] pl~iit In the oiginiuoon <>Ineu 1inr.sof pnidiiction '".
The United States Government contends that the Italian Government thus inter-
fered unduly in the ongoing bankruptcy proceedings; by publicly announcing its
intention to take over the ELSI assets at al1costs, it was allegedly discouraging
other possible bidders from competing at the later auctions2.
However this allegalion is totally unfounded. The announcement in queslion
was made when it was clear that there was no other wav out and for the sole
purpose of reassuring public opinion in ~alermo, whi& was und&standably
exasperated after months of vainly waiting for a possiblesolution to the dramatic
ELSI crisis. A perusal of the announcement reveals that IR1 was actually only
following a definite Government directive and that the Government itself was
perfectly aware that the acquisition of the plant was a very poor bargain. This
is the only possible explanation for the initial assurance that the purchase of
ELSl's plant would inno way havejeopardized the implementation of the original
STET project to build a new plant, also in Palermo, and for the final mention
of the commitment to start up new production lines in ELSl's plant. There was
therefore no danger of discouraging other possible buyers from bidding for the
factory. After ail, six months after ELSI had filed for bankruptcy (and eight
months after the announcement that it was being wound up) only two enter-
prises - General Instrument and Compagnie Sans File - had corne forivard
and bolh were interested solelv in leasine the olant once it had been nurchased
b! <>ilicrsrhcrciorc. Ille inno~iiscnicni of 13 %i,vciiihc.rIC)6Sniercl) .iic ih<>>c
conccrncd ihc :criXini) i1i.iihc ,dliiiion16)the cri,i\ u.i, clore;<ihinJ IiiiIi~i,
ihc ~bo\.c-nicnii~~ncJCour.rusiion. ii>rtlic \:rie of the FLSl T.i.%~r\ucre hcld b\
ihc rcr.ciir,riht ii>llo>iin$\car (la Jlnu.ir!.?? hllrch. 3 hl*!.. l? Jul! IC)h.)diid
Icd itiilic iin:il piirch~s~oi th: plaiih) ELTI-1.
' See Mernorial.Ann. 47.
See ibid,Ann. 29,Exhibit 4A. PART II
THE JURISDICTION OF THE COURT
In view of Article XXVI of the 1948 Treaty of Friendship, Commerce and
Navigation (the "Treaty") between Italy and the United States, the ltalian Gov-
ernment fully recognizes the Court's jurisdiction over the dispute in so far as it
relates IO the interpretation and application of the 1948 Treaty and the 1951
Supplementary Agreement.
The ltalian Government respectfully calls the Court's attention to the fact that,
under Article XXVI of the Treatv. iurisdiction onlv exists with reeard to "anv
dispuie hciuecn ihc lligli C<>nir.i:iing I?iriies :I,io the int~r~rei~tt~inur th<.
:tppli~:ii~onoiihis Trcat!. \ihich the High C'~>ntr;iriiriPgiriics sh.11noi s;iiiriicio.
rily adjust by diplomacy". The provision appears 10 require, as a condition for
submittine a disoute unilateral~ ~ ~ ~he Court. that the basic contentions concern-
ing the inÏerpreiation or the application of the Treaty should have first been put
fonvard in diplornatic neeotiations. A dispute between the Parties with regard to.
the principal iegal issues'could no1 otheiwise be held to exist.
In the "Memorandum of Law in Support of the Claim of Raytheon Company
and the Machlett Laboratories, Incorporated, Against the Government of ltaly
in Connection with Raytheon-ELSI S.p.A.""ubmitted by the claimant Gov-
ernment, the "Summary of Legal Arguments" (pp. 276-277,infra) referred to Ar-
ticles V, paragraph 2, VI and VII, of the Treaty, Article 1 and101paragraph 2
of the Protocol and Articles 1 and V of the Supplementary Agreement. In the
conclusions to its Memorial, the claimant Government no longer allegesviolations
of Article VI of the Treaty, Article 1 and/or paragraph 2 of the Protocol and
Article V of the Supplementary Agreement; on the other hand, violations of
Articles III, paragraph 2, and V, paragraphs 1 and 3, of the Treaty are also
maintained. The latter provisions had only been referred to during the course of
the argument in the earlier "Memorandum".
This lack of consistency on the part of the Government of the United States
with reeard to the treatv orovisions which have alleeedlv been infrineed hardlv
. . -.
c,~rruhoraic\ ihe claim.~niGo\ernnicni's ;unitnitons hi>cii on ihcc pro\ihi.,ns
In rcspC~.IclfIlle Couri's ,i~risdi~tion.the 1i~Ii:ir(i,i\r.rniiieiit ,w~ld requc>i the
Couri i<ilccldre ihxi ihc :ondiiidns \et forih in :\riiclc YX\'I ol'the Tre.ii\. h.i\.c
no1 been fulfilled. al least with reference to oart of the claim. However..in the ~ ~
interests of a complete settlement of the preséntdispute, the defendant ~overn-
ment refrains from putting forward any such request.
' Righl o/Possage case, ICJ Reports 1957,p. 149.
Unnumbereddocument. PART III
THE ADMISSlBlLlTY OF THE CLAlM
The ltalian Government rcspectfully submits that the United States Govern-
ment's claim is inadmissible in view of the fact that local remedies were not
exhausted by the two United Statescorporations on behalf of which the claim is
put forward.
In the well-known Amhurielos case. which concerned a claim made by the
G~eek~ ~~ern~ ~ ~ ~ ~nst the United Kinedom Government on the basisofthe
bilateral Treaty of Commerce and ~avi&tion of 1886, the United Kingdom
Government invoked the local remedies rule and the Commission of Arbiiration
"The rulc thus invoked bv the United Kinadom Governmeni is well
estahlishcd in iniern;iiion~l l;i;.Nor 15115 c.\iste~cccontc~tcd b) thc Crcck
Goi.crnmciit II mc.in\ thai thc Statc agiinsi uhich :in ini~rn;iiion~I :,<lion
ir broueht far iniuric, ,uikicd h, priv;iic indi\,idu.il\ hd, thc right Io rcsisi
such ai action il the oersons aileeed to have been iniured h;ve not first
exhausted al1the remed'iesavailableto them under the municipal lawof that
State. The defendant State has the right to demand that full advantage shall
have been taken of al1local remediecbefore the matters in disoute taken
up on the international levcl by the State of which fhc alleged to
have been injured are nationalsL."
The local remediesrule wasauthoritatively defined by the Court in the Inrerhun-
del casein the following terms:
"The rule that local reniedies musi be exhausted before international
oroceedines mav be instituted is a well-establishcd rule of cuslomarv interna-
iional 13~'. theriile h3s bccn gencrall) obscr\eJ in c:ibc\ in uhich 3 St~tc
h:ij <idoptcd the cJu,e cii11snaii<)naI uhgisc rights arc claimcd to hwc bccn
dijrezardcd in another Siatc In \io13110nof inlernationîl Iav. Befiire rssort
mavbe had to an international court in such a situation. it has been
c<>nsidcredncccsury ih:it the State u hcre the vi<ilntiun occurred .;hsiuld have
an opportunit" IO rcdreqc II h) 11sown me:ins. uiihin ihe franieua>rk Oi 11s
own dornesticiegal systcm 2.''
ltaly was therefore entitled 10 have an opportunity 10 redress the alleged
violations of the 1948Treaty and the 1951Supplementary Agreement within the
iramework of the ltalian domestic system.
In applying the local remediesrule. it is necessaryto assumethat thecontentions
with regard to law and to fact, which have been put forward by the applicant
Government on the merits of the case, are correct. ln the words of the arbitral
award in the Finnish Sliipoiiilers case:
"According to the principles approved by the Arbitrator every relevant
contention, whether it is well founded or not, brought fonvard by the
claimant Government in the international proccdure, mus1 under the-local
' 12Reporrro/lniernorionnl Arhirrol Ali,urdrpp. 118-119
1.C.J.Reporls1959,p. 27.28 ELBTTRONICA SICULA
remedies rule have been investigated and adjudicated upon by the highest
competent municipal court .. . The contentions to be taken into account
mus1 be considered well founded because otherwise~~he rule that where
recourse is futile recourse is no1 required would lead to the conscquence:
~ointed out by the British Governrnent, that unmeritorious international
daims would .be taken out of the rule that municioal rernedies must be
exhausted. But, as previously said, every relevant contention brought forward
by the claimant Govcrnrncnt in the international procedure - whether
erroneous or not - must, according ta theopinion expressed by the Arbitra-
tor, under the local remedies rule have becn examined by the municipal
courts, ere the respondent State is bound to enter into further international
proceedings' ."
The same approach was taken by the Commission of Arbitration in the Amha-
rieloscase:
"If the rule of exhaustion of local remedies is relied upon against the
action of the claimant State. what is the test to be aoolied bv an international
tribundl for ihc purporc <ifdcicrmining ihe 3pplic;l;ility of the rule! As thc
arhitr~tor ruled In thc t'i»ii>Jh V<'JJL.dse of Y h13y 1934.ihc only posrihlc
te\! 1s10 a\sun>c the iruih of the iaii on uhich th<.clnimani Siatc bdscs its
claim'."
Thetwo United Statescorporations on behalf of which the claim is put forward
never made useof any local remedy. The applicant Government contends that
no suit for damage.$"could . . .have been brought under ltalian law, on behalf
of ELSl's shareholdcrs. Raytheon and MachlettnJ. However, the only support
given ta this assertion is a corresponding paragraph in an affidavit by Mr.
Giuseppe Bisconti, Raytheon's Counsel ("Ann. 26, para. 28". to the Memorial).
Inthe present case no provision of the Treaty or theSupplcmentary Agreement
was ever invoked beforc ltalian courts. There is no doubt that the two US
corporations could have done so. Enabling legislation had been enacted in Italy:
Law No. 385 of 18 June 1949 (Gu:rrrru Uflciulr, No. 157 of 12 July 1949.
supplement) and Law No. 910 of I August 1960 (Cazzelra Uflciak, No. 213 of
I September 1960).the latter wiih regard to the 1951 Supplementary Agreement
Provisions of the Trealy had been regarded by the ltalian Court of Cassation as
self-executing and applied to the benefit of United States parties which invoked
them. See, for instance. decision No. 2228 of 30July 1960, The Dursr Munufacrur-
' Rcporr~O/ lnr~rnarionrilArhirrol Aivardpp. 1503-1504.
12 Reporrs O//nrern<iriun<l rhirrol Awurdr.p. 119.ln the von Oorrrr>i,ijcase the
EuropeanCourt of Human Rightssimilÿrlyheld:
"The onlyremedieswhichArticle26 of the Conventionrequiresta be exercisedare
those that relateto the brcachcsallcgcdand at the same timc are uvailÿbleand
sufficient(sec the Beweerjudgment of 27 February 1980, Series A, No.35. p. 16.
6 29).In order to determine whethera remcdvsafisfiesthesevariousconditionsand
k O" that accouri10 be regarded as likelytoprovideredress forthe complÿints of
the persans canccrned.the Court does no1 haveto assesswhcther thecomplaints are
well-founded: itmus1assumethis to beso. but on a strictlyprovisionalbasisand
purely as aworkinghypothesis(seethe arbitralion award of 9 May 1934in matter
al the 'Finnish Ships'. Unirrd Noiionr ColIrclion O/ Arbiirorion Aii,ordrVol.Ill.
pp. 1503-1504 a.l50citedby the Commissionin itsdecisionof 17January 1963 on ihe
admissibilityofapplicationNo. 1661162 . ond Y v. B?lgiun2.Yearboukofrhc Conven-
rio",Vol.6. p. 366)" Puhlicurions"/the EuropcoiiCourr of Humnn Righü. ScriesA,
Vol.40.pp. 13-14 (1981).
'Mernorial, 1,p. 65, n. 3. inx Co. v. Banca Commerciale Italiana, with reference to Article V, paragraph 4,
of the Treaty'.
In the Italian Government's view, the fact that the two United States corpora-
tionsnever resorted to ltaliancourts, when they could have based a claini against
the ltalian State on the alleeed facts and on the alleeed infrineemenis of the
Treaty and the ~u~~lernentàr~ Agreement, leads tothe conclusion that the
applicant Government's claim is inadmissible because local remedies were not
' 64Rivisio di Diriiro Inlernazionr(19611,pp. 117-118and 84 11 Foro IIB/~<~(1961).
1-304.Asimilarviewappearsto havç bec" takenby UnitedStates courts. In Spiessv.lloh
includingthetJapaneseTreaiy,areaself-enecutingtreaties, thatis tare1bindinpdomestic.
law of their own accord, without the need for irnplemcntinglegiskation".643 Federal
Rrporler,2d Series,pp.353 K, at p.356(1961). PART IV
THE INTERPRETATION AND APPLICATION OF THE 1948 TREATY
AND THE 1951SUPPLEMENTARY AGREEMENT
1.The legalterms of the dispute: the claimant and the defendant Governrnents'
positions. - The Government of the United States, al the beginning of its
Memorial of 15May 1987,asserts that the case
"concerns the failure of the Government of ltaly to afford to United States
investors in ltaly the protections and guarantees established by the 1948
Treaty of Friendship, Commerce and Navigation between the United States
of America and the Italian Republic (the 'Treaty') and its 1951 Sup-
plement '".
This claim is subsequently developed with reference, in particular, to Articles
III, V and VI1 of the 1948Treaty, and to Article 1of the 1951 Supplementary
Agreement. More precisely, the Government of the United States claims that
"the requisition and subsequent conduct were both arbitraryand discrimina-
tory, prevented Raytheon and Machlett from managing and controlling an
ltalian corporation whose shares they had lawfully acquired, and resulted in
the impairment of their legally acquired rights and interests - in violation
of Articles III and VI1 of the Treaty and Article 1 of the Supplement. In
addition, the requisition constituted a taking of Raytheon's and Machlett's
interests in property without due process and without adequate compensa-
tion. in violation of Article V of the Treatv. Italian authorities also failed to
~oniply wiih ihc obligaticin under ~riiLl; V to aitjrJ ilic proicLiidn :ind
re<urit!. h) tlic un\i~rr;iiiicd dela? in ruling on thc chdllengIO thc rïq~i*i-
ti<mordcr 2nd h!.Niling ioaflord pri~ieciior,ts ELSI', pl:ini :inJ premisc.' "
On the contrary, the ltalian Government coiisiders the charges concerning the
behaviour of the ltalian authorities to be unfounded, because they are hased no1
only on an inaccurate and biased reconstruction of the facts (as has been clarified
in Part I), but also on an incorrect interpretation of international law. It will be
shown how the provisions on which the United States Government's claim is
based should be properly understood and applied Io the case in question. Before
doing so, however, a few considerations need to be made concerning the nature,
content and general features of the two Treaties that the United States Govern-
ment claims have been violated by Italy.
2. The rules on interpretation to be applied with reference to the 1948 and
1951Treaties between the United States and ltaly. - Although the 1969Vienna
Convention on the Law of Treaties does no1 apply to the interpretation of the
Treaty and its Supplementary Agreement, the rules on interpretation included in
the Convention are to be considered as corresponding to those applicable under
general international law. As the Inter-American Court of Human Rights stated
in ils Advisory Opinion 0C-3/83: ". . the rules of interpretation set out in the
Vienna Convention . . .may be deemed to state the relevant international law
' Memorial. 1.p.43.
* Ibid.pp. 43-44. principles applicable to this subject"'. Similarly, the Arbitration Tribunal in the
dispute concerning the Delimitarionof the Maritime Boundary between Guinea
and Guinea-Bissau considered that Articles 31 and 32 of the Vienna Convention
provided the "relevant rules of international law governing the interpr<:tationW
of an 1886treaty. The Tribunal referred to the "Parties' agreement on this point"
and to
"the practice of international tribunals concerning the applicability of the
provisions of the Convention on the Law of Treaties by virtue of an interna-
tional custom recognized hy States (see in particular theLegalConçequences
for Storesofrhe ContinuedPresenceof SoufhAfrica in Namibia case, I.C.J.
Reporrs1971, p. 47, para. 94;FisheriesJurisdictioncase, I.C.J. Reports1973,
pp. 18 and 63, para. 36)'".
It should he noted that, in accordance with the general rules of interpretation
set out in Article 31 of the above Convention "[a] treaty shall he interpreted in
good faith, in accordance with the ordinarymeaning to be given to the terms of
the treaty in their context and in the light of its obiect and p~rpose"~. This
provision is expressed in such terms as to allow one to conclude that, out of the
various possible metbods ofinterpretation, priority is given to the tertualmethod.
This method has the advantage of being objective, precisely hecause il is based
on the normal. ordinary meaning of the words. The Convention gives less weight
to the intention of the parties as it appears from the preparatory worhs. The
value of these works, according to Article 32 of the Convention, depends on the
results of the objective method4.
Further elements which can be drawn from the above-mentioned Article 31
include the requirement that each clause of a Treaty shall be interpreted in ils
content. takine in10 account the aims oursued bv the oarties throueh the treatv
as a whhe. BG~ ofthe above indications strong~iem~hasize the unitary cliaractér
of each treaty. Therefore, it is necessary to rule out the possibility of artificially
combinine individual clauses which mav suit the soecificand occasional interest
of one interpreter in a particular case. Likewise, one must also refrain from
representing, as the "object and purpose" of the whole treaiy, an aim which is
partial with respect to the overall aim of a treaty, and which, moreover. is not
explicitly stated,but is, at most, pursued only indirectly in the treaty (in the
present case, the protection of investments).
3. The Treaty of Friendship, Commerce and Navigation of 2 February 1948;
its impact on theproblemof investments. - The Treaty of Friendship, Commerce
and Navigation signed in Rome on 2 Fehruary 1948 between the United States
of America and ltaly belongs to a well-known category of bilateral agreements
governing the treatment of aliens. Agreements of this kind aim essentially at
regulating the status of nationals of each Party, as well as of legal entities and
' AdvisoryOpinion OC-3/83of 8 September1983. AnnuoR l eportoftheInter-Amcrican
Courr of huma,^ RiCli1.y1984pp.28-29.
originalFrenchtextrelersto"La pratique des tribunauxinternalionauxquantal'applicabi-
lit&de dispositionsdlaconventionsur ledroitdestraiteau titre d'une coutume internatio-
nale reconnue entre Etat(...Y.See68 RivisradiDiri~toInternnzionalpe,609 (1'385).
' Emphasisadded.
However, the Italian Üovernmentfindsit usefulto camplete the setof preparatory
works(docs. Nos. 3to 17)concerningtheparliamentarydebatcsrelatingto the 1948Treaty
and the 1951 SupplementaryAgreement - an the claimant Gavernmentexhibitedonly
partof the relevantdocumentation - both forltaly and the UnitedStates.comnanies which have the "nationalitv" of one of the Parties. bv as~,~,~~--to
the; a number of advantagcs and guarantees in the other Party's ierritory.
One of the main features of these aereements is their broad sco~e. which is
due to the r"eat vanetv of obiectives nürsued. The matters reeulated include. in
the iirst ins13ncc.3 wide range of qucriions rcfcrrin,: tu ihc cst;ihli~hmcni.in ihc
tcrritorv of eiiher Party. of naiionsls and Icgsl cniiiics bclonging in thc other
Party, for the purpose of carrying on not only commercial and indusirial aciivities,
but also professional, cultural, scientific. religious or philanthropic activities. It
should also be noted that the benefits granted to individuals and legal entities
are not restricted to the recognition of rights with economic implications; also
ers on alriehts and even certain civil riehts and freedoms are covered.
' Within the franicuork of thcsc iiàrccrncnta. the proiisions gd\crning csi;ibliih-
nient arc iolloucd h) ihosc concerning intern3tion:ll trlidc dnd rcl~tcd prohlsms
of a fiscal, customs, and currency naiure; a further set of provisionsrefers to
navigation'.
The Treatyof 2 February 1948between ltaly and the United Statescorresponds
to the above model and is extremely complex. It lies kyond Our present scope
to go into its conteni in detail. We shall merely point out in passing that it is
over 20 pages long and comprises 27 articles. many of which contain several
paragraphs. The object and purpose of such a Treaty (in the light of which it
must beinterpreted. in accordance with Art. 31,para. 1.ofthe Vienna Convention
on the Law of Treaties cited above) are given an appropriate overall description
in the Preamble:
"strengthening the bonds of peace and the traditional ties of friendship
between the two Countries and [. . .] promoting closer intercourse between
their respective territories through provisions responsive to thc spiritual,
cultural, economic and commercial aspirations of their pcoplcs".
In consideration of al1 ihis, one cannot agree with the Government of the
United States when it claims ihat "the parties' fundamental intention" was "to
provide a framework which would foster a favorable climate for investment"'.
In our view. the aim of creatine leeal conditions suitable for invesiment was onlv
iinc of ihc nunicrous ilms pu~u& in ihe 1948I'rcal) '. It is usefulIO insist O;
ihis poini. in ordcr IO oppdse irom the duisci ihr Icndsncy cnicrping irom the
Mrmorial of ihc claimani Goi.ernmeni. namelv. io inicr~rci 311ihc ~roi,isionsof
the 1948Treaty as being intended to protect ihe invesiors of each'party in the
terntory of the other Party. This tendency does no1 conform to an objective
interpretation of the said provisions. Furthcrmore, it would also have the result
of ereatlv accentuatine the imbalance between the two Parties in view of the
ove&hefming predomynance of United States investments in ltaly over ltalian
investments in the United States.
In this connection il should be noied that numerousother Treaties of Friend-
ship, Commerce and Navigation concluded between the Government of the
United States and Western European countries alter the Second World War
contain an explicit reference to the fostering of investment as one of the aims
' In general,Blumenwitz."Treaties of Friendship. Commerce and Navigation".in
Encyclopaedio ofPublicInrernolionalLaw. Insl.7,1984, pp.484 iT
Memorial, 1,p. 69.
' In this regard,Walker."Treaties Torthe Encouragement and Protectioonf Foreign
Invertment:Present U.S .raciice".inAniericanJournolof ConriwrolireLaii,. 1956.p. 239.
sd)s ihdt ihc FSC 'Ircaiy iino1 a sprrul-iniirc>t\chicle. but r1hr.r une inio.uhich
in\ritur rrquircmenis.uiih r.Ircclyancx rrbrnferrnrrIoin\erim~nia .rc fiilcasinicprat
pari, lur aI~rgerrrgulaiion ul pnvaicakk ininiïrniiional rel3iiunr".pursued. This applies to the Treaties with Greece. of 3 August 1951.with Den-
mark. of 1 October 1951. with West Germany, of 29 October 1954. with the
Netherlands, of 22 March 1956,with Belgium, of 21 February 1961, and with
Luxembourg, of 23 February 1962.The expression most frequently used refers
to the possible coniribution to the development of closer economic and cultural
relations "by arrangements . . .promoting mutually advantageous cornmercial
intercourse and investmenis". It is noteworthy that wording of this kind wasnot
included in the Preamble to the Treaiy signed by the United States and ltaly on
2 February 1948.
Our remarks concerning the object and purpose ofthe 1948Treaty are indircctly
confirmed by the subsequent signing of the Supplementary Agreement (Washing-
ton. 26 Septembcr 1951). As can be seen from its Preamble, this Agreement
actually aims at "giving added encouragement to invesiments of the one country
in useful undertakings in the other country"; the contribution ilmakes to this
end consists in the "amplification of the principles of equitable treatment set
forth in the Treaty of Friendship. Commerce and Navigation signed al Rome on
2 February 1948". Clearly. there would have been no need to negotiate and sign
a supplementary agreement had ihe preceding fundamental Treaty givenmfficient
weight to the specificproblems of investment.
4. Recent tendencies of the Uiiited States policy for the protection of foreign
investments. - A significant development needs to be recalled here. In recent
years, particularly since 1982,United States policy, which had previously tended
to encourage the stipulation of furthcr Treaties of Friendship, Commerce and
Navigation (many of which werç ncgotiated after the Second World War), un-
denvent a change. Prefercnce began to be given to a more limited, hut more
effective,instruinent for regulating relations with countries with heavy United
States investments. namely. bilateral lnvestment Treaties. This new type of
aereement had alreadv been tried out in the seventies with reference io relations
bétweena number of'~uro~ean countries and several developing countries. The
United States ultimately saw the merits of the new approach and followed it in
the case of a number of countries (starting with ~gypl and Panama). An attempt
was made by the Invesiments Biireau of the State Department to draft a model
investment treaty '.
Two remarks need to be made in ihis connection. Firstly. the change in the
United States' attitude and the reasons for such a change are indicative of the
objective limitations of the suitability of Treaties of Frirndship, Cornnierce and
Navigation as a means for protccting investments. It kas becn rightly naid that
these Treaties were "intended to protect Amencan citizens abroad, rather than
private foreign investments"'. In Ouropinion, when doubts arise as to the scope
of certain provisions contained in the 1948Treaty beiween ltaly and the United
States, this factor should not be underrated. It should also be noted, again in
connection with Treaties of FricndshiD, Commerce and Naviaztion. that "the
attempt to address very complen issues in the context of a broad spectrum of
relations detracted from the utility of the FCN (Treaties) as an investment
protection device" '
shi Commercetz and.Ndvigdtion.entions a "decliningcelevance"oftheTreaiiesof Friend-
P.Bergman..'BilaterallnvrstmentProtectionTreaties: An Examinÿtion ofthe Evolution
and Significanceofthe U.S.Prototype Treaty". New York Jo~drnu<l>/lnl~rnoliorloti,and
Poliric~1982. p. 1.
Bergman. op.cil../oc. cil. This accurate remark can hardlv be reconciled withthe attemut bv the claimant
Government to make out that ~réatiesof Fnendship, Commerce and Navigation
are basically the equivalent of investment treaties'.
Secondly, the difierences between the two types of agreement weare comparing
must necessarily have repercussions on their interpretation. From the point of
view of the Government of the United States, each of the provisions in the 1948
Treaty to which it refers is merely a part of a complex regulatory design aimed
at protecting investments. This view must be challenged. The approach chosen
by the claimant Government distorts the global nature of the Treaty.
5. The principles on which the 1948Treaty is hased. - One of the fundamental
characteristics of the 1948 Treatv. which is riehtl-.emohasiz.d in its Preamble.
13 ihc Fdctthdi ii 1s"bds:d in gencr;tl iipoii ihc principlcs uin.iiion:il 2nd ciimost-
i:i\ored-n.,ti,>n trc.iiiiicnt in thc ~nconrliiion~lTorrii".Pcru\:il of the indii.idii:il
prcnirigins ciiihe Trc.iiy rci,c.ils th31 the iuo si~nJarJ> ;ire hoth rcierrcd 10 in
some articles (e.g., ~rt.-1, paras. 2 and 3), while refererice to only one standard
is made in others (e.g., Art. IV, which merely provides for the most-favoured-
nation treatment in the case of exploitation of mineral resources).
When the Treaty was signed, the liheral spirit with which the principle of
national treatment had been adopted was hailed by a distinguished member of
the United States administration. During the hearing of 30 April 1948before a
subcommittee of the Committec on Foreign Relations of the US Senatc, MI.
Thomas Blaisdell,assistant to the Secretary of Commerce for International Trade,
made the following declaration:
"The Treatv r,ore.ents accentance bv reoub,ican,ltalv~ ~ a number of
dcmiicr:itic prin:iplc~ in trndz 2nd na!ipdii,,n. he 11~1tl~~n iril:~ln1cnltic-
cor,lcd io corporti.>n\. for cx:implc, 15tlic mobi lihcr.11c\?r .pc~ifiedin in)
treaty enteredinto by the UnitedStates2."
Clearlv. both the national treatment and the most-favoured-nation standards
i.ik? on :iconcrcic and preciw nir2ning ihr<iughtlic :is:criainnicnt rcsp?ciiicl!
<II'the coiiditi<ins.ippl) in- itith? ciiircrir (anil ihiis sf the municip.il legi~l;ifioii
sd\criiirie themi xnd oi iliose ap..\i.e -n thiril couniricl :inil ilicir ciii/cn, iuridr.r
ïhe agreements concluded with those countries) with regard to a given matter.
Therefore hoth clauses have heen called "relativen3. Everything depends on the
point of view adopted in a single case, that of one or other of the contracting
States. and on the tvoe of treatment rdcrred to. In this connection it should be
notedthat, when spéakingof "treatment" onecannot take into account only the
advantages that are implied; in al1mstters, the overall treatment of aliens is an
inseparahle whole made up of advaniages and disadvantages. If one considers,
in particular, the concept of "national treatment" on the basis of this standard,
one cannot avoid recognizing that an alien possesses certain rights and related
obligations which are commensurate with the rights and obligations pertaining
to the local State's nationals in the matter in question. Although the most-
favoured-nation treatment implies the more favourable treatment between those
enjoyed and enjoyable by a third Country (or by one of its nationals), it is
necessary to compare the several legal systems in rheirenlireryeven for the
purpose of assessing the applicable trcatment.
6. The formula "in conformity with the laws and regulations in force" in the
1948Treaty. - Analysis of the 1948Treaty also shows that, in regulating a given
: Memarial. 1,pp. 69-70, notes.
- See doc. 15.
' Bergman,op. cil., p20. COUNTER-MEMORIAL OF ITALY 35
matter, the principle of national treatment, or that of the most-favoured nation,
is often accompanied by a specific provision according to which the eiijoyment
or the exerciseof rights by citizens ofeach Party are ensured "in conformity with
the applicable laws and regulations". When such a clause is included in the text
of a provision grantingnational ireatment,it reinforces theconcept defined above
according to which foreignersdo enjoy rights but are also bound to respect the
dulies imoosed on the citizens bv the laws of the country. In other words. the
respect olthe set of local lawsand'regulations isa limit thiiicannot beovrrstepped
by virtue OCa condition grÿnted to foreigners "protected hy a Treaty of Friend-
shi~. Commerce and Naii~ation.
ihic apprlirs quite re.isonahle and correipond. io 3 ,iiu;ition in uhich th',alicn
hcncliiing from national trcatmciii tind. him~clfquiie 3~3rl from I~C spciili~.ii~on
of conformity with the apolicable laws and regulations. A foreipner~cannot be
considered to have a orivileeed oosition vis-à-vz a citizen of the local State when
- .
the n3tionnl-irr~lmrni principle is applicd. Whcn ihc :ihi)rc-mentioncd spe~.iiiit-
lion 15coniained in 3 provision u hich cr;inis ihe mosi-f3\ourcd-n~iion tieïimcnt.
the limitation set on ihe treatment ofthe foreigner consists in not granting him
the favourable condition ensured IO the citizens of a third country, should this
not be compatible with the municipal legislation or regulations'.
With regard to the principles laid down in the 1948Treaty, it mus1be observed
that the claimant Government inakes occasional references to a notioii of fair
treatment, to which the status ofan autonomous principle seemsIo be auributed.
In fact, il is in the Preamblc trJthe 1951 Supplemcntsry Agreement that the
"orincioles" (and no1 the orincii~.e).f "eauitable treatment" stated in the 1948
Tre;ity :1remcnlioncd. 3nd il ias\cricd iliat ihcir ïmplitii;ition should ~.onirihutc~
IO en:ciurrgiiig in\e>inients iurihcr. Hui whrn Articles I tu Xlll (if thc 1918
Trctii!. th31 is. ihc 0110 ckau\e\ Jç3ling uiih c<i<ihlishincnl2nd IIic c,nlv ones
oartiallv aoolicable also to auestions of investments. are examined thrirouehlv.
ihe onli p;inciples repeatedl$ uscd appear to be those of national treatinenïaid
of most-favoured-nation treatment. The fact is that no fair-rreotmenr ~rincipleis
acrually srared in the 1948Treaty.
This becomes al1the more significant in view of the facl that an obligation to
ensure "equitable ireetmeni" (Io the persons, property, cnterprises and other
interests of nationals and companies of the other Party) is laid down explicitly
in the Treaties of Friendship, Commerce and Navigation entered into by the
United States with Ireland, Denmark, Greece, Belgium and Luxembourg. Some
other Treaties, particularly those concluded with Germany and the Netherlands,
speak of "fair and equitable trïatment" to be accorded by the Parties to the
above-mentionrd beneficiaries.
Therefore, the reference to the "principles of equitable treatment" contained
in the Preamble to the 1951Sup~lementary Agreement can only mean that the
Parties thereto wished 10express'their intention to go beyond thé two ~~rinciples
contained in the basic 1948Treaty, the value and function of which have been
'Accordingto anauthorquoiedinthe USGovernmeniMemarial(1.p. 72,n. 1)whose
ooinionseemsthereforeIo be sharedbv theclaimantGovernment.theohrase"in confor-
iity withapplicablelawsand re~ul;itionr"as it occurin this~reaty.i;rramedinsucha
mÿnnïr ;i.in implyihai ii docs-n<itcunsiiiuieA rrirndii,>ndeirÿiiinglrom thc l'rcai)
riphi(Waller. 'Pruria~unon Conip~nies in Uniie<Sli3irs<'umm~rii.Iire~iics" in Inzcri-
cd!,J<,brni~~~'In~rrnuririLnol !.19Shn 76.1.n 531 nie ahorz.mrnlio!icdohilse ~rno1
altogeihercléar.In aur opinionthe qu;stion is noi that of the detraction8~samething
froma Treaty right.What happensis simplythat theTreÿtyacknowledgessomerights
only to the extentla whichthey are in caniomity withthe laws and regulations ofthe
localStaie.36 ELETTRONICA SICULA
expressedin the "equitable treatment" formula. In other words, the pnnciples of
national and of most-favoured-nation treatment are both considered to be "prin-
ciples of equitable treatment". However, there is no separate fair treatment
principle to which the other two are added. At most ilmay be claimed that
Article 1 of the Supplementary Agreement implicitly grants equiiable treatment
to its beneficiaries in so far as it forbids subjecting the ciiizens and legal entities
of either Party to arbitrary and discrirninatory rneasureswithin the territory of
the other Party.
7.The Status of corporations, in the sameTreaty (Art. II. para. 2). - Another
general problcm solved by the 1948Treaty, and the soluiion of which of course
retains ils validitv in relation to the 1951 Suonlemeniarv Agreement. is that of
the status of legaientities. II is a well-known fait that, in;II trialies of friendship,
commerce and navigation, the category of persons who are entitled to benefit
from the protection provided by every treaty consists, in the first instance, oF
individuals who are nalionals of either party to the agreement.These individuals
are protected in so far asthey are presentor carry on activities wiihin the territory
of the Party other than the one of which they are citizens. A second category
consists of legal entities: wiih regard to the latter each Treaty establishes the
criteria according to which they are said to belong to one or other of the Parties
to the agreement, and consequently rccognizesthe right of lcgal cntities bclonging
to one State to cnjoy thc advantagesgranted under the Treaty within the territory
of the other Statc.
Article II, paragraph 1,of the Treaty signed betwccn ltaly and the Unitcd
States on 2 February 1948 gives a broad definition of the term "corporations
and associations". In particular, it includes amone the latter al1 "coroorations,
compJnics. partncrbhip.; and uihrr ar,oci;ition\. ùheiher or ncit aiih Iiniircd
liahilii!2nd whrihcr or not for pccunicir) prolit. uhich nia). ha\.c hccn ur nia).
hcreaiicr hc created undcr ihe applic..lc laus and rçy,ulatio.~" Parai;raph - 2
goes on to lay down that
"[c]orporations and associaiions created or organized under the applicable
laws and regulaiions within the territones of either High Contracting Party
shall be deemedto becorporationsand associationsof such High Contracting
Party and shall have iheir juridical status recognized within the territories
of the other High Contracting Party whether or no1 they havea permanent
establishment, branch or agency therein".
In order to belong 10either Party, according to Article II, paragraph 2,of the
1948Treaty, what is therefore required is that the creation (or organization) of
a legal enlity lakes place in accordance with the applicable legislation in the
resnective territories. The Treatv has adooted thc criterion of nationalitv (if one
intcn<lstu usethis icrm) uhch i;hs\cd on the place oiorlgin ofcach lep.il cniity.
Thcre 1,no prohision eiiher in ihe Trcdl). or in 11s Supplemcniarv Agrcemcni
tu the r.tTcciihdi a Ilirh Coniracrina Paris m. .cliim thai a cornorJiion \\hich
ivs, noi "crcatcd or org~nizcd undcr ihc ;ipplicablr Iau\ and regulaii<>ni" uiihin
iis icrriiory iincvçrihclcis a c<impJn) of the >amc l'art) Aj tv2s \txicd in ihc
brief for the Uniicd Statesas <imiri<r <.itrruin Si,niiro,~i\,.~li.ralionou~ih rcpard
to the similar wordine of the Treatv of Friendshin and commerce betweei the
Ilniicd Statesand Japan. the Treaiy "pri>\ision niakcs ilesr thai a comp:iny kas
the naiionality of iis place oi inciirporation"'. The hrlci ran as foll<ius COUNTEK-MEMORIA OFL ITALY 37
"The simole.ola.e-of-incorooration standard in-~he FCN tre~tie~ was ~~ ~ ~ ~~
dclihcrritcdep~rturc fr<~m <~thertests ofcorporaic nationnlity - inïluding a
conirol tesi of thr sort adopted hy ihr couri ofappeals - thai wrrc iolloue<l
or su--ested in other situations durine -.e orecedine severaldecadesWalker.
titprc~. 0A,*i<,ri<.u,lJi~iini<rlo/'ln~c~rn,iriLlt~aal ?X ).Morcoicr. ihï intcnt
ol'thc P:trties rhiita .mmpan!.'sn~1ion:iliiyuould nui bc JctermineJ h!. the
nationality of ils owners is reinforced hy other provisions of the treaty that
distinguish hetween nationals and companies of a Party and enterprises
owned or controlled hy such nationals and companies'."
This argument was accepted by the Supremc Court of the United States, which
applied it to the case in hand in the following terms:
"Sumitomo is 'constituted under the applicable laws and regulations' of
New York; based on Article XXII, paragraph 3, il is a company of the
United States, nota company of Japan. As a company of the United States
operating in the United States, under the literal language of Article XXII,
paragraph 3, of the treaty, Sumitomo cannot invoke the rights provided in
Article VIII, paragraph 1. ivhich are available only IO companies ijf Japan
operating in the United States and to companies of the United Statesopera-
ting in Japan?."
From the above-mentioncd Article II. paragraph 2. in the case in hand it may
be inferred that Raytheon and Machlett, which are companies of the United
States, are beneficianes of the proteclion aRorded under the Treaty with regard
to their activities in ltaly (or, more in general, to the situations having ansen in
ltaly and which concern them directly), while ELSI, which without any doubt is
a company of Italy, is not included among the beneficiariesof protection under
the Treaty with regard to ils activities in Italy, or in situations relating to them
which have occurred in ltaly (cg., the requisition of ils plant, the result of a
decree which was addressed to ELSI).
8. Provisions of the Trcaty protecting activilics and goods which formally
helong to persons of the local State. - As a general rule the Treaty and the
Supplemenlary Agreement proteçt the physical persons and legal entities of one
Contracting State solely as far as activities carried on and property directlj'held
in the other Contracting State are concerned. However, there are a fewprovisions
which, as wellas according protection to such activitiesand property,also provide
protection for certain property that, although formally belonging to a physical
oerson or leeal entitv of the local State. are si~-srunriull~a~ctivities~ ~ ~ ~onertv
belonging topersons of the othcr State.'For example, Article V, paragrBph'3, if
the Treaty. after granting the nationals, corporations and associations of one
~ontracting partyboth national and the most:favoured-nation trcatments within
the territory of the other Contracting State for the purposes of the matters
enumerated in paragraphs I and 2 of the same Article. makes the following
further provision:
"Moreover, in al1matters relating to the taking of privately owncd enter-
prises in10public ownership and the placing of such enterprises undsr public
' Ihidenral p.634.
seq.,p.794(1982).Art.XXII, para.r 233.(oltheTreatybetwcenthe UnitedStates andls. p.Japan,
whichcorrespondstoArt. II,para.2.oftheTreÿtywithItaly.reüdsasfallaws:"Companier
constitutedundcrthe applicablelawsand regulationswiihln thc territoriesof eilhcrParty
shdllbe deemedcompaniesthereof" Art. VIII. para. 1.confersrights on "nationals and
companiesof citherparty . . within the territoriesof the otherParty". control, enterprises in which nationals, corporations and associations of
either Hieh Contracting Partv have a substantial interest. shall he accorded.
within the territories oithe Gher High Contracting Party, treatment no less
favorable than that which is or may hereafter be accorded to similar enter-
prises in which nationals, corporations and associations of such other High
on tract Part^ have a substantial interest, and no less favorable than
that which is or may hereafter be accorded to similar enterprises in which
nationals, corporationsand associations ofany third country have a substan-
tial interest."
The structures of Article III...arae-.~h 1. second sentence. and Article III.
paragraph 1, second sentence, are quite similar.
The existence of the above-mentioned provisions can be explaincd by recalling
that there are frequent cases in present-day economic life of companies set up in
one country and in accordance with ils laws expanding their activitics to other
countries. diiïerent from that of their origin, by means of other companies
controlled by them. The latter can be set up by the "parent" company, or
com~anies mav become "narent" comoanies bv buvine.un ,he maioritv of the
lore/gn conipany'. sharcs iihiq occurrcd in thc c.t>cof Ka)ihcon lin;l EI'SIJ.
I.cgliIlIImusi bc obscr\cd thai. in 3nvcase. the~~onirolling:indtheiontrollcd
comia.v .emain two distinct entities. that is. two subiects which can. and in the
prc,cnl c.tse ~iiu;illy do. h:iw JitTcreni n~tionaliiies
Thz phcn,imcnon dcsirihcd a> thc subordination of one cdmpany td rnothcr
mav lead to various conseauences in treaties of friendshi~.cornmerciand naviea-
tioi. Theoretically, the ~oktractin~ States could çolvethe question of the nation-
ality of a controlled company by means of a clause in which the latter is deemed
to belong to the national tat tf thecontrolling company (or "parent" company).
However, this type of solution is not envisaged in the 1948Treaty between ltaly
and the United States. It was decided instead to make the nationality depend on
the State of oririn and to include od hoc vrovisions in order to cive a certain
Iiniitcdimporra~cc to thc iaci olihesontriil hc~n~exertcdh) a conipiny hrlonginp
io ihz oihcr conirlicting Siaie llouc\zr. ihir h3sthrce con,equencis. about \ihich
there seems to beno doubt:firsr. the controlled cornpany retains its nationality,
in accordance with Article II, and this must be taken into account whcn applying
al1the provisions of theTreaty which do not have the special nature of the above-
mentioncd provisions contained in Articles III and V: second, the link between
parent company and controlled company. which certainly exists at the level of
economic interests, does no1allow of any identification hetween the two when it
comes 10interpretinr the Treatv: rhird,the above-mentioned provisions mus1he
given a restriciive inkrpretation because any exceptional rule mus1he interpreted
narrowly; it is therefore not possible to expect that the phenomenon of control
by a forcign company over a national company has any impact beyond the
situations provided for specificallyin Articles III and V.
9. Alleged violations of Article V of the 1948Treaty. - Let us examine the
individual provisions of the 1948Treaty and the 1951Supplementary Agreement
on which the United States has based its claim. 11will be shown that, in the first
place, Articles V and VI1of the Treaty are almost entirely irrelevant to the case
in hand, and, in the second place, Article III of the Treaty, and Article 1of the
Supplementary Agreement, when interpreted correctly, do not support the
contentions of the claimant Government.
Article V concerns the "protection and security" of the persons and property
belonging to nationals of each Contracting Party within the territory of the other
Party. Paragraph I makes ilclear that the term "nationals" is to be understoodas including corporations and associations in so far as the provision set out in
the same paragraph is "applicable in relation to property". Paragraph 2, which
deals with a particular aspect of the protection and security of propcrty, lays
down that
"[tlhe property of nationals, corporations and associations of either High
Contracting Party shall not be taken within the territories of the other High
Contracting Party wiihout due process of law and without the prompt
payment of jus1 and effectivecompensation".
The same orovisions eive those receivine such comoensütion the rieht to withdraw
it..uithoui inicrfcrcn<.c".uiih rntiilcm~nt to forciin currency lindi,ith cxemptuin
irnm any I~X for iransfer or rcniitianGr'l.a\ily. paragraph 3cnsurcs ihri treülmeni
no less favourable than national or most-favoured-nation treatment will be ex-
tended to enterprises in which nationals and corporations of each Contracting
Party have a substanlial interest whenever, wiihin the ierritories of the other
Contracting Party, the enterprise is transferred from private to public ownership
or the enterorise is transferred to ouhlic control.
'Shr ~i<i\ernmcni 01.ihc ~nitcd' Siaici coniends ih.11,\riicle V. pnrn~r~ph 2.
iisj \iolaicd b) the Ii;ili;inGoiernmrni rihcn IIrcquisiiioncd ihc FI.SI pllini. In
iiiopinion. ihc .'rusr;intcr'of c<>nipcn\aii<iiscxicndcd b\ the Proio~.olaiiüchi.J
to the Treaty "1; intercsts held d'irectlyor indircctly by nationals, corporations
and associations of either High Contracting Party in property which is taken
within the territories of the other High Contracting Party" ("in other words", it
is claimed at (I), p.89, of the Memorial suhmitted hy the Government of the
United States, "the treaty unambiguously protects the investment interest of
United States shareholders in ltalian companies whose property is taken by the
ltalian Government"). Lastly, Article V, paragraph I, is alleged to have ken
violated because the ltalian Government sunnosedlv did not orotect the ELSl
plant after the requisition; furthemore, para'&aphs-l and 3 oithe same Article
are deemed to have been violated at the same lime owing to the delay with which
the Prefect decided on the appeal against the requisition.
Let us begin from the las1two points. The preliminary remark to be made on
the claimant Government's contention is that the problem of the protection of
the ELSl plant, as well as that of the delayed decision by the Prefect, do not
directly concerii the United States companies, which the Governmeiit of the
United States seeks to protect. Article V, paragraphs I and 3, guarantees the
protection and security of property belonging to United States companies in
Italy, while the plant that according to the Government of the United States
should have been proiecied under the Treaty belongcd to the Ira/ianCompany
ELSI. Moreover, also, the Prefect'sdecision on the appeal against the requisition,
together with the Mayor's decree were actually addressed to ELSI. The statement
expressed on (1)püge 89of the Memorial submitted by the United States Govern-
ment, according to which assets were "owned through ELSI" hy Raytheon and
Machlett is totally unacceptable'.
In addition to this preliminary observation, a numher of facts can also be
challenged. In Part 1of the present Counter-Memorial it was clarified that the
occupation of the ELSl plant by the employees began before the requisition. and
not after it, as the claimant Government would have it, and that the attitude of
the workers entailcd no risk for the plant after the dccree issued by the Mayor
of Palermo. especiallyas the Mayor had appointed two represeniaiives to ensure
ihat the orders issued with a view 10 the management of the factory were40 ELETTRONICA SICULA
respeiicd. Adequatc clarific;iiions hate hrcn gii.en uith regard IO ihe c;iuscr and
ellciir oi'ihc del:i) wtih \\hich Ihc Prcl'wi decidcd upon the ;ippe;il. In an? c3.e
IImu\t ahiolutelv be riilcd oui ihat thi*dela! has ;in! conneetion u,iih ihc allcr-d
violation of parigraphs I and 3 of Article V.
10. . . .and of the Protocol annexed to the Treaty. - With regard to the
alleged violation of Article V, paragraph 2, it musi be pointed out that this
provision accords, in the local State, protection against the taking of property
and provides for compensation to be paid for property bclonging to nationals,
corporations or associations of the other Contracting Pariy. It is true that
paragraph 1 of the Protocol specifies that this protection is afforded also to
"interests held directly or indirectly by nationals, corporations and associations
of either High Coniracting Party in property which is taken within the territories
of the other High Contracting Party". However, this does not mean that the
same orotection is to be eenerallv eranted as for orooertv beloneine to nationals
of thiother ~ontraciing-party al& to property ;>eriain;ng to aucokpany which
belongs, under the terms of the Treaty. to the local State and is controlled by a
company belonging Io the other ~tate. Only exceptionally are some ~reat~
provisions intended to ihis effect (supra. para. 8) and a different language is used.
Furthemore. under paragraph I of the Protocol proieciion is accorded only
10 rights to property. While the ltalian text refers only to "rights" (diritti)the
term used in the English tex1is "interests". According to Article 33, paragraph
4, of the Vienna Convention on the Law of Treaties. the provisions drawn up in
two equally authentic languages are to be interpreted in such a wliyas to reconcile
the meaning of the Iwo texts and therefore, in this case, in the more restrictive
sense of the ltalian text.
A iurihcr irhrcr\ation. irhich ir dcriritc in iisclf. xinounis Io Jcnying the
i~pplicahilii)oihoih ihc Protocol 3nd ,\rtiClc \'.p:ir:igr>ph 2.in ihi. prcscnt c.ije.
inr the iimple redson that n\>cxprc>pri:iiion <ir"tciking ,iiproperl)" occurrcd. A
tempordr) requisilion decrcc was i\,ued with the crlectiihlocking the ;i\atldhilii?
of the ELSl plant for six nionths and thcrcforc of p:iriially ruspending the
company's management functions, but only as far as chat particular plant was
concerned. On the other hand. the Commune of Palermo eained nothine at the
company's expense. Thus, it must be ruled out completel; thnt the requisilion
decreed by the Mayor of Palermo can be considered an expropriation measure.
The ltalian tex1 expressly refers to expropriated property jbeni espropriati). In
fact, Article V of the Treaty covers completely different situations from that
which actually occurred'.
' In n. 3 al1, p. 90, the United States Govemmrnt'sMemorialquotes a number of
awardsdeliveredby the Iran-United StatesClaimsTribunalduringtheyrars 1981-1986 and
triesto demonstratethat interferencewithan alien'spropertymayamauritIoexpropriation.
eventhoughthelocalStatedeniesto have adoptedsuch ameasure.and notwithstandingthe
factthat thelegaltitleIothepropertyiormallyremainswiththeowner.theessentialcondition
king that the foreigninvator "has no reasonableprospectof regainingmanagement and
control".nie applicationof thisdoctrinetoour case dependr on the ariurnptionthat "the
Govemmentof ltaly physicallyseiredELSI'spropertywiththe objectand eRectof ending
RaytheonandMachlett'smanagementand control,inordertopreventthemfromconducting
offiaals"therequisilion%.asgoingto k extendedkyond ilssix-monthstem. whilcIR1wasian
completingilsarrangementsforacquiringELSl'sassets:thatiswhyRaytheanand Machlett
had no reasonableprospect ofeverrecoveringmanagement andcontrol ofELSI.Whatever
themenu oftheclaimantGovemment'scontentionsinlaw.theassumotionmentionedabove
is hlv dcnied by the ItalianGovemment:ELSI'Sr>ror>ertw vasiianiallyrequisitionedfor
ihrrci<ons ritcd inPari I r>ihiscounier-iiici~iuriaai.inu ini;niian.ii.,nji?i,! Ri>irhii,n
and Irlachleiimanagement and ;unirr>lThcir end ulr aau~ll) thc rrsulul the hanlrupti)
prkt~Jlng<.opened JIihc reqdcrtui thr ELSl mAnagcmr.ni II Inicrprct3ii<in and applicaiion of Ariiclc VI1 of ilic '1rcaty.- \Vc shnll
now ek3mine the problcms rdiscJ hy the inicrprcisiiun dnJ applic3tion oi Articlc
VI1ofihe 1.148Trcaiv In paracraph 1.irhich sccnij 1,)he ihe onc to han mdinlv
attracted the attention of ihe Üniied States Govcrnmcnt. this Article accords to
ihc n3tionals. corpor:iiiiins 2nd associaiions of c~chC<>nirxiing Pariy. ihc nghi
IO ';icquire. iiwn drid dijpoic of" imm<)i.dblcpropcriy or inirresis ihcrciii uiihin
ihc icrriiorics of ihc othcr Coniraitiiik P~rtv. lbr ~<1rn<>r3110 afsUnilcd St<itcs
nationality the conditions are cornmensurate with Chetreatment accorded to
ltalian corporations in the Unitecl States state of origin, and in any case do not
iniply niorc e\tciisiic righis ih.in ih<i>cgr.inisd Io lc<jl pcrwn, in lidl!. The 1;ici
ihdi thic prs\ijion includcs d piinciplc 01'ihc ircc :i\.dil.ihilii! di iniin.ii.ihlc
propcri) I> intcrprcicd b) ihc Cio\crnincnt sf ihc United Siatcc in ihc ,ense 1h.11
ihcltalian Government should have been under an obligation to respect the
decisions of the ELSI management concerning the voluntary liquidation of the
company and should not have rcquisitioncd the ELSl plant, since the requisition
allegedly prevented "the owncrs" [rom disposing of the plant; in any case. the
rcquisilion should have bcen followed bythe payment of compensation.
Oncc again the first objection is thai the plant belonged IO ELSI. thal isto an
ltalian company. The above-mentioned Article VII. applied to the situation to
which the dispute relates, could only ensure the free availability to Raytheon and
Machlett of the ELSl shares which belongcd10them (an availability about which
nobody has cast any doubts). Supposing the two United States companies were
iruly the owners of the plant rcquisiiioned the decree of the Mayor of Palermo
would not have had any efect since ilwas addressed to ELSI.
There are, moreover, othcr objections Io be made. It is hard to see how the
respect of a company's decision conccrning its own liquidation can be confuscd
with the only rights which unquestionably pertaincd to Raytheon and Mtchlett:
their riehts as shareholders of ELSI. It is hard to see how. in order to leave a
compaiy free to implement its own voluntary winding up, the ltalian authorities
should have refrained from requisitioning ils plant: without doubt, such ;in argu-
ment would he inconceivable withrefereice toan ltalian comoanv. sincea reauisi-
iion dccrcc rckrrinp io ceriain cdmpany prt>periyrdn Icgitimîicly hccniorrcd c\cn
if the comp3n) 1sbcing w,iuiid up In th15conncction ilis \rurih po~niingoui ihxt
the ahiivr-mcntioncd Ariiclr V11.113rarr;ioh1.c~oliciilvsxcludcs ihc ~os\ihiliti of
United States companies having niore<xtensive hghts ihan those accbrded bithe
lialian legislationIo national companies in Italy. Lastly. it is worth repeating what
hasalready kn notcd with regardto the requisition,that is,that it onlytcmporarily
blocked the availabilitv of uart of the ELSl Drowrts. Comoensation rvas not
eventually paid simply bffa;se il ivasreplaced by the dimages baid to the requisi-
tioned party', as was explained in Part 1.
12. Evaluation of thc problems raised by Article III of the Treaty. - The
orovisions of the 1948Treatv and the 1951Suoolemen..rv Aereement on which
;hi. C>.ncrniii:iii of rlic ~.'niicdStsics sccnis niïinl? to hi\r.'hascd iti c~,c Arc
Ariiclc III ~iiilicTrc.ii!. :ind hriic.e IofihcSupplenicniiry~Ayr~cmcni Aitcnti.>n
will now be addressed to these provisions.
The content of Article II1 is rather comnlex. The first oaranranh beeins hv
guaranteeing tbat the nationals, corporations and associations of each - CO;-
tracting State will have "rights and privileges with respectto the organization of
and uarticiuation in cor~orations and asiociations" within the teÏritorv of the
othe; ConGacting ~tate,'in accordance with the applicable laws and reiulations
of the local State and benefiting [rom ihe most-favoured-nation treatmcnt. In the
' In thisexplicitsenr eee Courtof Appeal of Palermo. Mernorial. Ann. 72.42 ELETTRONICA SICULA
case in point nobody has challenged the right of Raytheon and Machlett to have
a riaht of oarticioation in the ltalian comoans ELSI. There is no disagreement
on ihis beiween ihe Parties in the oresent Droieedines. Article III. narGranh 1.
thcn goes i)n IO ackno,rlcdge ihai the corporations and asrociation~ ., Liiicach
Contmciiny Paris in uhich rx~iioniili.corporaiions and associxtioni of ths other
Parts.o.rtiiioateand which are controlledbv the latter subiects. "shall be oermii-
icd io ekcrciscihc iunciions for uhich they are cre~iedor orpaiii~edincimforniiiy
wiih ihs app~~c~blç Iain and rcgul~tion~". enIoyin2 the ino\i-iavoursd-nai~on
treatment.
The claimant Government contends that the first sentence of paragraph 2 of
Article III has been violated. This provision ensures the right of nationals,
corporations and associations of each Contracting Party to "organize, control
and manage" corporations and associations of the other Contracting Party" in
conformity with the applicable laws and regulations" within the territories of the
latter Party. According to the Government of the United States the provision
summarized above gives the United States shareholders in a position to control
an ltalian company "a guarantee of non-interference with management and
control"'. Furthermore, the ltalian Government is accused of having exerted
undue influence on the manaeement throueh the resuisition decree.
Both these contentions have to be challenged. In Chefirst place, the requisition
decree in no way affectedcontrol by the shareholdcrs over the company. It merely
concerned the management by the company of some property helonging to the
said company. The nght to control and manage certain "local" companies is no1
subject to unlimited guarantee, as the powers granted by law to the local authori-
ties are thereby unaffected.
More exactly, with reference 10the case in hand, it should he noted that there
can be no violation of the Treaty in the case of a requisiiion decree based on a
Law (Law No. 2248of 20 March 1865,Ann. E, Art. 7. previously cited in Part
1).This represents the logical consequence of the principle of "conformity with
the applicable laws and regulations", which is cxplicitly asserted in Article III,
paragraph 2. The possibility of requisitioning private property "because of grave
public necessity" is, in fact, one of the cases provided for in ltalian legislation
conccrning the unavailahility of a plant for reasons of puhlic interest. Moreover,
it should not be overlooked that the Mayor's decree hadthe effectof determining
only lemporory unavailability of the ELSl plant.
Moreover, the fact that the requisition decree issued in the case in point was
subsequently declared to be invalid does not transform it into a manifestation of
undue interference by the ltalian authorities. Until itexpires or is overruled, a
decree is to be considered legitimate and effective. In this connection, it should
be recalled that the Prefect acknowledged it as a point of law that was
"undisputed, in case law and legal doctrine, that the Public Administration
is emoowered under the above-mentioned Article 7 to disoose of the orivatc
propcrty uhcnc\er neccs,ity crisis io face .Isiiuaiion ofaciual and imniincni
."
danger ior the puhlic intr'rest(public hcalth. public urder. etc I
The Prefect likewiseacknowledged the Mayor's power10issuerequisition decrees
on his own initiative.
One ooint which deserves soecial attention is related to the nature of the
conseq;ences of the requisition'decree. II in no way transferred the ownership of
the ELSl plant to the Commune of Palermo. It only partially suspended the
exercise of control and management hy the company, with reference to the COUNTER-MEMORIAL OF ITALY 43
requisitioned property alone. In façt, by 1April 1968,the ELSl Board of Directors
had alreadv decided in complete freedom to ceaseproduction and to liquidate
the assets.~urthermore. alter the reauisition. the Comoanv wa, abl, to Lakean
extremely important decision for its future, namely, to file for bankruptcy. Only
after this decision and becauseof il, did the ELSl management defi-itely lose
control and management or the company assets.
13. Article I of the 1951 Supplementary Agreement: was the requisition an
"arbitrary" measurc?- Let us now examine Article 1of the 1951Supplementary
Ag-eement. It ~rohibits subiecti.e the"nationals. cor~orations and associations
111'eïch Conir~ci~n)! Pilrt)'. in the icrriiorie~ oi the <~ihcrPart!. IO "arbiiriir! or
~li~criminit~iry mediurcs" havinp. in particular. one oi'ihe li~lloiiingcll'ciis: "10,
preventing their effective control and management of enterprises which they have
beenoermitted to establish or acauire therein. or . ..J im~airine their other leeallv
icqiii;cd righis or inicrcris in auch cntcrpri>cs or in ihi invc~nicnis whichihcj
have madc' in various fornis. including in pariicular ihr conirihuiion oi' Cunds
~ ~
through bans or shares.
In the oresent case. the Covernm~nt~of the United States claims that the
rcquisiiion of ihc fLSl pl;int decrccd hy thc 41:i)or of I'alcrmo rcprrsenled :in
arbiir3ry and di>criminaiory mea5iirc urh ;irtu prcvenl ihe Uniied Sintcs CompJ-
nies R;t)thcon iind \lachlcii l'r<immaintaining the clicciii~econtrol and niancigr.-
mïnt of ELSI Indsniuch ;is IIis responsiblc for tlic rcqui.iii,in dccrcc. the Italian
Co\crnmcni ISthus :illcgcd tu h:ihc \iol;itcd the ahore-meniioncd Articlc 1 tii
the 1951Agreement.
The first objection to bc raised to this contention is related to Our previous
remarks conccrning Article V, paragraph 2, of the 1948Treaty. In the present
connection, it must be said again that the requisition decreewas addressedto the
ltalian company ELSI; the United States companies Raytheon and Machlett
were not actually subject to any measuresaiiecting their property. It is also worth
repeating that the above-mentioned two United States companies, whiçh were
shareholdersof ELSI, neveractually lost control or management of the company:
the company organs, through which this control and management were per-
formed, were able to function freely also during the period of the requisition, as
they were merely deprived (for six months) of the availability of the plant. One
may rekr in this context to the decision to file for bankruptcy, alrcady mcntioned
above, which was taken after the requisition.
There is a second objection, which would still be valid evenon the assumption
that the decreeof the Mayor of Palermo directly affected Raytheonand Machlett:
the requisition of the ELSl plant cannot bedefined either asan arbitrary rneasure
or as a discriminatory measure.
In general, an "arbitrary" mcasure is defined as a measurewhich is completely
lacking in justification, and which can be explained only as a tool used by the
public authorities to damage and oppress a private citizen. In most Treaties of
Friendship, Commerce and Navigation entered into by the United States after
the Second World War, a prohibition similar to the onc contained in the above-
mentioned Article 1 of the 1951 Suo~lement..v Agreement.is ~.aced on any
"unrea\onahle or d~siriminaiory ntcasurcr ihai uould imp~ir the Isgally acquircd
riphtr or intcreais <ifnat~<inals2nd companies or the oiher Ihriy in the entrrpriscr
which thcy htivc cjtïhlished"'. Each P;irty iithercfore prohibited from iakiiig
'See Art. V of theTreaty with Ireland(21January1950)and likewiseArticlesVlll of
the Treaty wilh Greeee(3 August 1951).V of the Treaty with the FederalRepublicof
Germany(29October 1954).VI1 of theTreatywith the Nelherlands(22March 1956),IV
of the Treaty with Betgium(21 Fehruary 1961),IV of the Treaiy with Luxembourg
(23February1962).44 ELETTRONICA SICULA
measures detrimental to the rights or interests of the citizens and companies of
the other Party, whenever those measures can be defined as unreasonable; in
other words, whenever no possihility exists of identifying an admissible reason
on the hasis of which public authorities have the power to limit those rights or
interests.
Indeed, the way in which the Government of the United States represents the
requisition decreed by the Mayor of Palermo against the ELSl company appears
similar to an act corresvondine to the model of arbitrarv or unreasonable mea-
surcr drscrihed .ibo\c s~trisc it iimention th;it. oii (1) pge 80 di thc \Icin,irial
ruhmitieil b! thc L'iiiieJ Sl.iic\ Go!criinicnt. 11 15:l>iimeJ.;inion2 othcr things.
th:ii the purnos i~ithe reauisiii,on ra> 'I<I nrctent K.ivthc<in2nd M;i~hlctifrein
protecting their investmeit". But a perusal'of the req;isition decree issued on 1
April 1968 reveals that it was based on two undeniable facts: ELSI, having
decided to close down its plant and dismiss about 1,000 of its employees, had
created a serious socialand economic nroblem. and the rcactions bv the emnlov.es ,~~~
and the trade unions, with the backing of public opinion, were &ch as to create
fears of "disturbances of public order". In the light of these facts - the exact
analysis of which has been~carriedout in the preceding pages containing a correct
reconstruction of events (Part 1) - the Mayor of Palermo was of the opinion
that the "features of serious public necessity and urgency" required by law in
order to proceed witb a requisition actually existed. His decree can therefore in
no way be said to be arbitrary.
The Memorial bases its argument on the decision of the Prefect of Palermo to
setaside the Mayor's decree and merelyquotes a passage taken from that decision
in which the requisition is held to be "destitute of any juridical cause which may
iustifv il or make il enforceable"'. The Prefect in faci stated: "Therefore. the
orde; is destituteof any juridical cause which may justify it and make it enforce-
able'." However, this passage is only the conclusion of an argument, as can be
seen from the following wofds:
"There is no doubt that the goal to which the requisition was directed
could not be actually achieved by the order, even though - in theory - in
the case in point, the grounds of the grave public necessity and of the
emergency and urgency whichcaused the issuance of the order may be held
Io he existing. This is proved by the fact that the activity of the company
was neither resumed, neither might it he resumed."
in other words, the requisition decree was deemed illegitimate and set aside,
certainly not because it was arbitrary - indeed, the Prefect acknowledged that,
"in theory", the decree respected the conditions of necessity and urgency - but
because the purpose of the resumption of activity by the company "could not be
actually achieved" in this way. The Prefect's decision went on to criticize the
Mayor for not having taken account of the fact that
"the state of the company was such, for reasons of an economic and func-
tional nature, as well as for market reasons, that ils activity could be
continued only after action by the management Io solve the company's
financial and industrial problems".
TIis decibionto \ci a\ide the rcqui~itionde~rccthersiorc cont~ined no .;iaiemcnt
11131II nrls '.irhitr.ir)". the cl:iim:ini C;i>~crnriiciitir 3ticmpting io ni.ihe o~t
trithe prtrent i~he Wh.it ir3c ,tated. c\,cnti:ill!1sthai thc,dc:ree \i,:not stiitshlc
' Memorial, 1,p. 80
Seeibid .n,n. 76, 1p.362.for achieving its purpose of getting the ELSl plant to function. Therel'ore the
requisition decreewas cancelled becausethe concrete goal the Mayor was trying
to achieve was unattainable (and he had therefore wrongfully exercised his
powers). Clearly such a situation has nothing to do with an alleged "arbitrary
measure" under the above-meniioned Article 1 of the 1951 Suppleinentary
Agreement.
14. Was it "discriminatory"? - It is now necessaryto ascertain whether the
reauisition in question was a "discriminatorv" measure accordine to the terms
ofihc rame ~riicle. Hy adiipting the ihcsir ihai the rcquisition de& wds aimcd
at gi\ing IR1 the lime to cxpropriair' ihe properiy of ELSI. rhc Government uf
the Cnilcd Silieb rontcnds ihai ilua*: the uurDo,c is allexcdIO bcdiscriminatorv
in so far as it aimed at favouring a public e"terprise controllcd by the ltaliak
Governmeni '.
This thesis, howcver, is no1only groundless, but is also the result of an obvious
misinterpretation of the concept of the discriminatory measure set out in Article
1of the 1951Supplementary Agreemenl.
It is possible to speak of discrimination only when two comparable situations
are ireated in diflerent ways to the detrirnenl of the interests of one of the parties
concerned. Within the framework of a Treatv of Friendshio. Comme.,e and
~avi~ation which is essentially based on the standard of national treatment, the
situations to be compared for the purpose of ascertaininy whether the princir>le
of the eaualitv of trcatment has &en resoecled or not.are those of a fore&
in\csior ;nd of ihc corresponding wtional'invesior. In the casein hand. itwozd
ihereforc be ncscsslir) Io pro\,e ihai Ra)iheon 2nd M3chleii. nssuming thai ihc
rcquisition drurce was addrcsscd IO ihem. had bcen discriminstcd ag~iii51uiih
rcspcci io possihle Iialian intcstùrs. In othcr word\. ihat the rcquisition ionccrned
them US U~IIIPJ S1u1e. s<IIII~<III~while the Iiÿlian in\cstors. if an). would noi
have sulTcrcdany damaae. This must bc ruled uui entircls no1even the Cotcrn.
ment of the ~niied taïe eas ever claimed that the reqÜisition in question was
decided out of bias against United States companies. In fact, during tlie same
years, requisition was frequently used with regard Io plants belonging to cum-
oanies. the mai.ritv.shareholders of which were ltalians (Part 1.uara. 9).
' Furihcrmore. the iaci thai [KI is considered b) ihc Go~eriimcn~iof ihr United
Staies IO be the bcncficiar) of the rcqutsition ir quiic irrclevani. The claim;ini
Govcrniiicni hxsconicnded rhat theallceed f~tourse.<iendcd io IKI hy ihc Iilil,<in
Government were one aspectof the unfivourable treatment meted out to United
States investors. But what is the logic behind this assumption of discriniination
against the Raytheon and Machlett companies? With respect to what other
subject in a similar situation were the Iwo United Statescompanies discriminated
aeainst? It should not be overlooked that..accordine to the hiehlv imaeinutiv~ ~~
Gesentation of the facts made by the Governrnent Of iheünitzd hates> IR1 is
equated to the ltalian Governmeiit, which is accusedof having "discriminated"
aeainst the two United States comoanies.
With rcir'rencc in uhai actuall) hxppened WC shall limit ourcel\csIO rcpeÿting
uhat ha$ bcen said aho\,e. namcly. ihai al ihc lime of the requisilion IR1 had no
inrcniion of iakinr rhc pl.ice of R;i$ihcon and Machlett in sdnirullinr ELSI. noi
only in view of thG company's extrémelypoor technicaland economi~conditions,
but also, and more simply, because,according to IRl's industrial policy, it was
not considered advisable to iniervene on a larger scale in the sector of ELSl's
activiiies. Besides,the purposesof the decreeof the Mayor of Palermo were those
stated in the text of the requisition order and nothing else.
' Memorial.1. p. 80.46 ELETTRONICA SICULA
It remains to be seen whether the decisions related to the requisition of the
ELSI plant resulted in damage to "other rights and interests" of Raytheon and
Machlett or to investments made by them in the form of financial contributions,
ihat is, loans or shares. In this connection it should be emphasized from the
outset that, in order to speak of damage resulting from violation of Article 1of
the 1951 Supplementary Agreement, the basic assumption must always be that
the requisition decree was arbitrary or discriminatory; and we consider we have
already refuted such an assumption. We also wish to point out that the company
subjected to the decree in question was an Italian and not a United States
company; moreover, loans and shares were not directlv afiected. 11is in anv case
important tu recall th:ii the interests oi ihc ~:i!theon'and hlachlcit r.i)mpaniej,
and the ultini:itcdc\iin) oitheir in\e~tmcnis, uércjcop:ir<ilzedh!.evenis occurring
prior to the rrquisiiion. fur e\ample.tlié(iroi.cn in:. ..isiol ilic ELSI mxnüze-
ment to make profit, and its increasinginso~venc~,as well as by a subsequint
Tact,which was the consequence of the above-mentioned circumstances and in
any case of the will of ELSI itself, namely, the declaration of hankruptcy. As has
beenamply illustrated in Part 1,the requisition decreewas in practice a parenthesis
in the life of ELSI. The only damage caused by the decree was that of the
temporary unavailability of a plant whose activities had already ceased without
there being any intention of resuming them. Therefore the Italian Government
completely rejects the accusation of having violated Article 1of the 1951Supple-
mentary Agreement. PART V
ISSUES RELATlNC TO THE CLAlM FOR REPARATION
1. Subsidiary nature of the comments concerning the United States claim for
reparation. - In the preceding Parts of this Counter-Memorial the ltalian Govern-
ment has shown ihat the claim of the Government of the United States on behalf
of Raytheon and Machlett is inadmissible and, on a subsidiary basis, that the
alleged infringements of the Treaty and the Supplementary Agreement haveno1
taken place. As the Government of the United States claims reparation on the
basis of wrongful acts that have not occurred, it is not strictlynecessaryt<ideal in
this Counter-Memonal with issuesrelating to reparation. However, on a further
subsidiarv basis. thc ltalian Government addresses some remarks on the daim for
rePür;iiionin ordcr 10 point out th31cvcn in ihis rcjpcct the cIaini3nl Go\~crnmcni
rcsorts Io duhiot~s~.ontcniionsof Ihu ïnd tu Jiriuri~uns of f.ict - 311dcsigncd to
maximize theamount of damages for which compensation is requested.
Given the entirely subsidiary character of thecomments expressed in this Part,
it seems appropriate to make only a few general remarks. However. the Italian
Government expressly notes that the fact that some assertions by the claimant
Government are no1 soecificallv contested bv no means imolies that the same
a\scrtiiinrürç rccogni~ed LIS;iccur:iicor supporisd b) utliiicni e\idence In iuct.
thc slhimïnt Gi>\crnmrni rclic. hcüi.ilyon docunisntr originating froni ELSl or
Rai,the<inur on ~fida!.its of ocrsons clorel\ conncctcrl uith Rx\,theon. Thr il.iim
esséntiallvrests o-~the book va~ua~ ~n if ELS~ ~ as~ets. wGle no analvsis is
oiTeredofexperts'valuations which weregivenduring the bankruptcy proçeedings
or of Raytheon's own pre-bankruptcy "quick-sale valuation"'. As was shown
(see Part 1, paras. 7 and 17).the book valuation in no way corresponded to the
actual prospects of the sale of the assets.
Under the circumstances, the ltalian Government notes that the claimant
Government is far from having discharged ils burden of proof also witli regard
to the alleged damages.
2. Links betweenthe allegedviolationsof the Treaty and the allegeddamages. -
A claim for reparation may only be put forward for losses for which "in legal
contemplation" the allegedacts were"the efficientand proximale cause and source
from which they flowedM2T . his cliaracteristic of being the efficientand proximale
cause must pertain to the alleged wrongful act or acts which is, or are, considcred
to have occurred. There must be a closeconnection between the infringement that
has e.xhv,.rhesioccurred and the lossesfor which re~aration isclaimed'.
In the clüimant Coi,ernnient'c Xlemorial ihc links e~istingbciuecn e3ch alleged
infrinpenieni of a Tredi) pro\ision and ihe ïllegcd Ios\es are no1 explured. For
exam~le. the aoolicanl Government's contention thai ELSl's bankruolcy was
"the direct ad'foreseeab~e consequence of the requisition order"' js iotally
unacceptable. As was shown above (Part 1,para. II), bankruptcy was rather the
' Memorial. 1.pp. 106IT.
Thur the Administrative decisionNo. IIgivenby ihe UnitedStates-CemaiiyMixed
ClaimsCommission.7 Rcporrs ofhrrrnnrionolArbirralA*i.nr&p ..,30.
' Strictlvswakinc. the lors sulieredbv nationalreannot be identifiedwith the lors
sulicredbi thé~tzcas acon se^^ o^<^heinf"ng&cnl ofan obligationunderinlerna-
tionallaw.See Aga,Seririisull<riesponsobiliridn:erno:ionoledegliSrari.II(1986).p.981.
' Memorial, 1.p. 107.48 ELETTRONICA SICULA
consequence of ELSl's state of financial affairs and of Raytheon's declared
unwillineness to make anv further investments in its subsidiarv. Nor could the
dela) in'ihc Prefect's des;.i<)n in:r the 3ppea1 hr c,>n,iilcred ÿs a cnuw <ii ihs
b;inkruptcy sincr EI.Sl's tiling its application for bünkruptq cdms only seten
düys aiter ihr.xppeïl (Part 1,para. 14) Ihur. elen iiihc requi\iiion deirce and
or-the delay inlhe decision over the appeal were taken to-be infringements d
Treaty provisions, no obligation ta makegood the allegedlasses in the bankruptcy
proceedings could be justified.
3. Considerations on the sums paid by Raytheon as a guarantor of ELSI's
loans, or claimed by the United States in relation to Raytheon's credits towards
ELSI. - The Government of the United States also seeks to recover sums that
Raytheon had ta pay in the bankruptcy proceedings because it had guaranteed
some loans taken by ELSI. These guarantees were not an investment, but only
a security covering 50 percent of the loans which were giventa ELSI by some
ltalian banks and which were otherwise unsecured. The banks lost 50 per cent
of the monev borrowed bv ELSI. This monev had contributed to ELSI's assets.
By claiming.the mune) i\.hich Kïbtheon l~ir.;~aid as gu3rmtor ior the other 50
percent. ihe Go\,ernment oi ihc Cnited siair aiicmpts 10 ihift <IIO the Itülian
Go\ernmeni the loss of nioney u.hish uas borr<iurd 2nd .iciu3llv used hv EI.SI
and never paid back to the lenders. It would bean extraordinary ireaty
indeed which would imply that the ltalian Governrnent should make good a
financial loss of a United States Company for money that had been freely used
by that company's Italian subsidiary.
Substantial sums are claimed in relation to credits that Raytheon or other
companies of the same group had towards ELSI. These sums do no1 necessarily
correspond ta investrnents. No claim had been made with regard to these credits
in the bankru~. ,.oroceedines-.Given the fact that al1these credits exist towards
c<imp-inicsïII bclonging to thc .;une multinationrl group. their asserimeni iroiild
rcquirc particular cars in e\aluaiing thc \sr\iccs a2tuall) rcndcrcd and the gt~odr
~ruvidcd - bath uith rcrard iu t.l.Sl's necd ior thes< ser\iccs 2nd e-.oJs.and
iheir prices in relation toiàir-market prices.
4. The issue of the legal expenses incurred by Raytheon. - Legal expenses
incurred by Raytheon can hardly find their "proximate cause" in the alleged
infringement of a Treaty provision. "Legal and related expenses" incurred by
Raytheon "in ursuing its claim against the Government of ltaly for its actions
against ELSI"' are at best part of the costs relating to the present proceedings.
Most of the alleged legal expenses concerned lawsuits initiated by five Italian
Banks - al1independent entities, which are grossly misdescribedas "government
banks acting pursuant to a government plan"' whenthey were only seeking ta
recover their financial losses over money borrowed by ELSI with a guarantee
coverine onlv 50 ver cent of the sums4. These lawsuits are clearlv unrelated to
any a16~ed.infrk~ement of the Treaty. Even the claimant ~overnment's
contention that, had there been an "orderly" liquidation, the banks "would have
' IbidMe.,109.,Ann. 26, 1, p. 239.
3 .,..",
A The h~nksin\okr.J Arilclr2362 of the ItaliÿnCI\ICodr ~nd cdniinJeJ !hi. sinçe
Rs)thzun uas inrubrianccth< sole<iockholdeorf ELSI.the corporïie\.ci,huulJ k llited
3X*ln>tihe UnitedSta1r.sc<>mndn$ Thedcuuiritiun01 a çmilladri of,hdre\ h$ h43chlr.11 COUNTER-MEMORIA OLF ITALY 49
settl~~ their debts~,(sic, with ELSI"' is sheer soeculation. Moreover. costs were
auarded IO Rïythcon h) Itlilian courts in the simc litig~tions2. the awartls coisr
normal legalckpenie,. incluJ~ngfccr iorrcsponding Io Lu)cr,' idrifi: an? iurihcr
Ieglilrhpcnre poisibl) iniurred hy Ra)thcon c3nnot be con\tdcrcd to he rcawn-
dblc ~nder ihc circumstiiiices
5. Tlie clatm rel3iing Io intcrrsi. - Wiih rep:iril10 in1crc;i the It:iIi3ni;o\.ern-
ment recslls thdt in thc I.~rhrlz~>i<irdbc ihc ,\rhitr~I Trib,in.tl si;iicLa, iblloii-:
"1. . .]no strict rules of Iaw iofa general character exist which prescribe or
forbid the award of interest. The Arbitral Tribunal cannot accept the vicws
expressed thereon by the two Agents, with opposing results. Also in this
respect the solution largely depends on the character of each particular
case3".
No interest was awarded by the Court in the CorfuChannelcase. The Govern-
ment of the United Kinedom had not claimed interest but the Court did not refer
io th,.. iircumstance and siid. "The Court considers the irue meliwrc ofcompsn-
saiion in the prercni car? in he ihe rcpl:icemeni co~ of ihe S~tv~~r<ir<o>itime 01'
ils loss'."
Amone t-e circumstances to be considered in the oresent case is that the
iippliwiion IO ihe Couri could uell haie heen niade min) years carlier As ihc
Cio\.crnment of the Uniicd Sixte\ .t:iteJ in 11s\lcnior:induni of Lau of 1974:
"ln none of the outstanding proceedings is it possible for Raytheon and
Machlett to recover any compensation which resulted from the iiçls and
omissions of the Govcrnment of ltaly on which this claim is based5."
Thus, if one considers the claim to he admissible contrary to the contention of
the ltalian Governinent, the claim would have heen equally admissible iii1974.
The applicant Government's claim for compound interest finds little support
in practice. The following quot;ition from the arbitral award in the Bri~islr
Properlyin the SpanishZone of Moroccocase appears 10be particularly relevant
in this context:
"With reeard to the choice between simole interest and com~ound interest.
ihs r\rb~irator niuii firii of ;il1~131~ ihdt ;irb~ir;iIjur~sprudcncc conccrniiig
iumpensaiion ihai 3 Siate should grant 10 another for damages suticred hy
nationals of the latter - althouah it is ~articularly rich - is unaninious, as
far as the Arbitrator knows. in denyin~compound interest6."
' Memorial. 1.p. 109.
DOCSN .OS. 41-42,
12 Repuris O/ lnrprnorionolArhiirol Aivordx, p. 252. In the original French the text
read~ a~ foilows:
" iln'c\iriiJi. r<yleror.rlr~~rigiilcd'ordre gn:r.il q~i prc,;ri\cni du inicrJi,tni
I'~lloï~ii.>rnl'ini6rELz Tribunal ne ,diordixdmritrcIc, ihc\r, Jr., Jeu\sgr.nis4ui
s'! r?f"rcni.d'~illc.uren Jer rem ooou<>i Ici en;.ircId ,.Auilundéncnd I:.-rcrnini
déscaractéristiques de chaquceas p;;ticulier."
I.C.J. Reporr.71949. p.249.
"The Claim".p. 56.
2 ~cporrr of lnrernarionolArbirrolAtiordr. p.650. Inthe originalFrench the textreads
as follows:
"En ce qui concernelechoixentre lesintéréts simples etlesintérétc somposés.le
rapporteur doit tout d'abord constater que la jurisprudencearbitrÿle en matière de
compensation accorder par un Etat à un autre pour dommages subispar les
ressortissantsde celui-cisur leterritoire decelui--à jurisprudencepourtani particu-
lièrementriche - estunanime, pour autant quele rapporteur lesache, pour écarter
lesintérêc tsomr>osés." SUBMISSIONS
The ltalian Government makes the following submissions:
"May it please the Court,
To adjudge and declare that the Application filed on 6 Fehruary 1987by
the United States Government is inadmissible hecause local remedies have
not been exhausted.
If not, to adjudge and declare:
(1) That Article Il1 (2) of the Treaty of Friendship, Commerce and
Navigation of 2 February 1948has not been violated;
(2) That Article V (1) and (3) of the Treaty has not heen violated;
(3) That Article V (2) of the Treaty has not heen violated;
(4) That Article VI1 of the Treaty has not been violated;
(5)That Article 1of the Supplementary Agreement of 26 September 1951
has not been violated;
and accordingly, to dismiss the claim."
16November 1987.
(Signed) Professor Luigi FERRARB IRAVO,
Agent of Italy. DOCUMENTSANNEXED TO THE
COUNTER-MEMORIALOF ITALY
Document1
TREAT YFFRIENDSHCIO.MMER CEDNAVIGATIOBETWEENTHEUNITED
STATESOFAMERICAND THE 1~~1.REPUBLI I,NEDATROME 2, FEHRUARY
1948,ENTEREINTOFORCE2,6JUL1949, 79UNTS 171
[Iloliun fe.rrno1reprod~ced;for IheEnglish1e.rrsee 1.pp. 9-31]
Document2
AGREEMES NUTPPLEMENT INCTREAT YFFRIENDSHCIO,MMER CBD
NAVIGATI ON2 FEBRUAR1948.SIGNEATWASHINGTO2N 2, SEPTEMB1951,
ENTEREDINTOFORCE2 MARCH1961,404 UNTS 326
[Iralian resr norreproduced;/or the E1,pp. 32-37]ee Document3
[Iralion rexrnot reproduced]
BILLsubmitted by the Minister of Foreign Aiïairs (Sforza), in agreement with
the Minister of Justice (Grassi), with the Minister of the lnterior (Scelba), with
the Minister of the Treasury (Pella), with the Minister of Finance (Vanoni), with
the Minister of lndustry and Trade (Lombardo Ivan Matteo), with the Minister
of Defence (Pacciardi), with the Minister of the Merchant Marine (Saragat), with
the Minister of Foreign Trade (Merzagora), and with the Minister of Labour
and Social Security (Fanfani).
RATIFICATION AND EXECUTION OF THE TREATY OF FRIENDSHIP. COMMERCE AND
Session of17 December1948
Honourable Deputies. On 2 February 1948the Representatives of the ltalian
Republic and of the United States of America signed the Treaty of Friendship,
Commerce and Navigation now submitted and proposed for your approval. It
contains, in the first place, provisions on the right of settlement, followed by
provisions on trade, navigation and transit, some general clauses, an additional
protocol and a supplemental protocol. An exchange of Notes, providing for a
supplemental cultural agreement, is attached to the Treaty.
The old Treaty of Commerce and Navigation, signed by Italy with the United
States on 26 February 1871, has not been in force since 15 December 1937,
following upon its termination one year before. This agreement replaces that
Treaty, modelled on the old pattern of absolute free trade, and governs the broad
category of Italo-American relations on the basis of modern criteria of a modern
protectionism. Ambassador Dunn, upon signing the Treaty, pointed out that the
new Treaty signed on 2 February 1948, was, also in its structure and fom, a
broader, more modern version of the old Treaty concluded 77 years ago.
This Treaty pursues essentially economic aims. It aims at strengthening trade
relations with the United States of America. that are of the utmost im~ortance
tu our (ountr) Thc sipiiitiwnic. ucll knowii to c\cr>ho<lv.of oLr international
cLoninnic rcliiiioiiJI a moment uhcn thc trend to\i.irds ircc tr.idc rc-cmcrpcs
as the means destined to foster world economy and improve the standard~of
living in the various States, confers upon this Treaty a meaning which cannot be
underestimated. In the framework of the progressive increase of commercial
exchanges between Our continent and North America, and in compliance with
the resolutions contained in the ITO Charter, this Agreement is a precious
contribution towards the regulation of Our foreign trade.
The first part of the Treaty contains a number of provisions on the right of
settlement (Arts. I-XIII). These provisions concern the treatment that each State DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 53
grants to the citizens of the other State, guaranteeing, as a general rule, full
freedom in the exercise of private activities, and drawing inspiration, in-any case,
from the principle of reciprocity.
The Treaty provides for, in the first place,the exerciseofcommercial, industrial,
financial, scientific activities, etc., on the part of citizens of each State living in
the territory of the other contracting Party: the exercise of these activities is
permitted, except for the legal profession. It is undeniable that this clause is very
advantaeeous to a large number of our countrvmen livine in the United States
of ~menca, since therë are many professionals among ourëmigrants, in addition
to unskilled labourers.
This first article oheys a criterion that we hope will be followed in future
settlement aer-ements with other countries as wen. since the exercise of ~rofes-
sioiis is generüll) irc~tr.J onl) iragmcnt.iril) in \pccifis agreciiienis iiith varidur
~~iuntriî\. The prinirlon presr.nt\ the nierit of ïowring ail lihcrül pri)ic..ii)n\
(except for the above-mentioned legal profession), thus avoiding on one side
resorting ta the slowmechanism oisubsequent agreements concerning the exercise
of professions taken separately, and eliminating the difficulties of interpretation
stemming from partial provisions on the other.
The provision under letter (b) of the same article, paragraph 2 (concerning
the acquisition, the construction and the renting of buildings for the various uses
Io which they are dcstined), and Article II, paragraph 3, granting to juridical
persons and to the associations of each contracting Party in the territory of the
other Party treatment equal to that of private citizens, are equally advantageous.
Article VII, with regard to the right of settlement, isequally significant; it provides
for real rights in movable and real property to which private citizens, juridical
persons and the associations of each Contracting State in the territory of the
other State are entitled.
As far as the articles on real estate are concerned, acquisition, possession, and
the other real rights are subject to conditions aiming on the one band al complying
with the domestic legislaiion of each State and at enforcing an equal treatment
on the other, which should under no circumstances be less favourable than the
one granted to citizens of any third State. In the articles concerning movable
property, the freest disposition of property is granted to American citizens in
ltaly and to ltalian citizens in the United States, whereas express provision is
made for succession (hoth in the case of mortis couso and intev rivos), and for
the relative acquisition of movable property. Similar provisions refer to al1the
matters concerning acquisition, property, renting and possession of movable
property, rcsultiiig in the establishment of conditions absolutely equal to the
rights enjoyed hy nationals in the same matters.
Article XI provides for the exerciseof those freedomswhich should be protected
in a tru~ ~ ~mocratic State: ~ ~ ~ ~ ~f conscience and relieion. freedom .f~
, -~ , ~ ~ ~ ~ ~ u ,
publication and information cannot but be granted to those foreign citizi:nswho
offer serious euarantees to exercisethem approp~.atel., never infringing the-li-its
of public or&r.
Provisions on social matters are also present; they arc particularly useful to
Our countrymen living in the United States, given the considerable emigration
[rom Italy to the United States and the need to guarantee favourable work
conditions to our workers in the US. The second part of Article XII, in fact,
deals with social insurance, extending to the citizens of each State living in the
territory of the olhçr country the benefits granted by laws aiid regulations estab-
lishing compulsory insurance systems in favour of nationals.
The rules governing our trade relations with the United States begin with
Article XIV. Similarly to those rules contained in international agreements envis-aging exchanges of defined consignments, these rules show a trend toward the
relinquishing of the auvarchic system, which had proved anti-economic and
incapable of increasing the national income. Against a background characterized
by the quota system and by restrictions to international free trade, which iswhat
the world is suiïering from right now, any attempt to create a trade flow and to
overcome, in the conventional way, the obstacles to economic relations among
the States is commendable and deserves Ourfervid approval.
Like the Treaty of 1871, this Treaty provides for mutual freedom of trade
between the territories of the two contracting Parties. This clause, however, has
a much greater value today, given the graduai worsening of the international
trade outlook after the First World War. Obviously this frcedom, envisaged by
the Treaty, is by no means unconditional: paragraph 3 of Article XIV explicitly
admits the eventuality that one of the two Parties, on the basis of its domestic
administrative legislation, therefore exclusivelyunilaterally, has imposed or may
impose in the future any restriction to the import, sale, distribution and use of
foreign products, including those of the other Party. What the two contracting
Parties basically commit themselves 10, is the mutual enforcement of the most-
favoured-nation clause: in the first place each of the two States will have to
refrain from imposing prohibitions or restrictions on the importation and to the
use of the products of the other State other than prohibitions or restrictions
imposed on al1 third States; secondly, as regards customs duties, formalities,
customs clearance fees, taxation, sale and use of products either imported or
destined to be exported, each of the two Statesundertakes to grant to the products
of the other State a no-less-favourable treatment than the one granted at present
or which will k granted in the future to the same products of any third State,
or destined to il.
The sienificance of these ~rovisions is inbuilt in the advantaees of the most-
favouredynation clause; theclause allows a levelling of duties and has a liberal
nature; it is destined to make relations among States tranquil because it avoids
diiïerential treatments and thecontrasts deriving therefrom: moreover, it guaran-
tees to domestic oroducers. vis-à-visthose foreien-.roducers with whom thev arc
in compciiiion. an iihroluie equdlit). of trcîtnicni on forcign mîrkcts.
The boost ihe I'rcaty 15hound 1,)pro\,idc io Our conimcrci~l flows from :inJ
towîrds the United Stîicr of Amcrlr~ dur', no1 rule i>utihc r~ossihilitb - should
the situation so require - of Our Government taking restrictive measures in
connection with international trade. The Treaty allows ltaly -on the basis of
reciprocity - to enjoy a favourable treatment vis-à-vis ihe United States, since
our products destined to he exported to the United States are subject to the
minimum duties provided for by the US customs legislation,whereas the products
we import and upon which export duties have been levied, are subject to the
most-favoured treatment.
In the old Treaty of 1871,many rules envisaged the svateof war and governed
trade relations between the two States, specifying the duties and obligations -
in the case of war - of the neutral State and of the belligerent State; even the
eventualitv of war between the two Parties was envisaeed. in s~ite of the ex~licit
condemnahon contained at the beginning of Article ?lU("if,duéto an unforéseen
misfortune, God forbid, the two Parties were to wage war on each other . ..").
The new Treaty does not mention war, either in the case of war between the two
Parties, or in the case of the two Parties waging war on a common enemy, or -
finally- in the case of only one of the two States king at war with a third
Staie.
This remark stresses the nature of the Treaty. destined 10be an instrument of
international solidarity. aimed at governing peaceful relations between the two DOCUMENTS ANNEXED 70 THE COUNTER-MEMORIAL 55
Rep~blics on .iIcirgcp:iri ,>f~.urlenie;,~noniic prohlemr. Tti ihc pro\,iiion, un
crscntiall) somiiicrcial activiiies. In f'ict. other dispositions musi hc :idd:J. con-
Lzrninr tin3nsi31ni3itcrs ir\ri.X\'IIi. conirncts iAri XVIII. 2nd o;ir;ierar>hi2nd
generaÏly al1those matte;s which have been judged by the two ~tat& io be of
common interest.
The clauses on navigation and transit, contained in Articles XIX-XXII, present
some new elements, as opposed to the old Treaty, which deserve special con-
sideration.
It must be pointed out, in the first place, that there is no reference whatsoever
to warships (Art. XIX, paragraph 2); two exceptions refer to the assessment of
the ship's nationality on the basis of the flag the ship is flying, and the shelter in
ports or in interna1 waters to be granted to al1ships of the other State which are
in danger, owing to bad weather or other serious causes (for instance, in the case
of damage suflered by the ship). The Treaty of 1871on the other hand, in most
of the clauses on navigation, made no distinction between warships and merchant
ships, therefore including the former as well in the hroad-based regu1;ition of
relations between the two countries. Furthermore, many articles of the ol<lTreaty
made reference to maritime war, and listed the goods to be considered, in the
case of war, to be subject to the restrictions of contraband of war.
The above-mentioned elements are not mesent in the new Treatv. wliere the
rcgiil:ition ir .-,?rifincdto irade rcl~tionj ;trijing froni n;i\i?dtidn ;in,l ir;iii,it
Wiihin ihese Iimiis. iull irc~~dum ,ifn>\igatiun is gr~nied 10 the ships of boih
nxiion\ on ihz h:iiir ,iiah,ol~tc cqudlit). thus cnjiiriiip iiiIcfinipltxnce \\,th ihe
principle, regarded as of the utmost importance in international law, whereby
merchant ships of al1 countries are free - as a general rule - to enter the
territorial waters of other States and to go with their loads to the sea ports of
foreign States for their commercial exchanges.
Moreover, the Treaty provides for absolute equality of treatment between the
two Parties; in fact. in the case of oneof the two States deciding to impose limits
on the maritime navigation of foreign States, the treatment granted by orle Party
to the shios of the other Partv should not be less favourable than the one eranted
to ils shiis by the said othe;~arty.
The content of paragraphs 2 and 3 of Article XX is even more liberal; they
lay down that, as regards harbour-dues, dulies levied upon goods and passengers
and in other similar cases, the ships of the other State are entitled to receive a
treatment equal to the one enjoyed hy national ships.
The above-mentioned dispositions and a number of other provisions concerning
navigation and transit are in full compliance with the legal status enjoyed by the
ltalian merchant marine vis-à-visthe other States with whichmaritime navigation
has been regulated at international level.In particular, the above-mentioned rules
must be seen in the framework of the com~lex matter dealt with. in 1921 and
1923 respectively, in Barcelona and ~eneva by a number of tat tes i,cluding
Italy, but not the United States of America. An important result of the Italo-
American Treaty, as regards navigation and transit, is therefore the enterision to
the United States. to Our country's benefit. of most of the orovisions that had
been ;idreed iipon in R.irccl<~na ind (iznetx in the :~ho\~-nieiili~?n~n diult11ater11
agrccmcnts Iiali~ti n.1\1g3tion riillrecciie con\idcrahlc 1.1i..iniagc. irt~ni thi.:
procedure, al1the more important al a moment when our productive effort aims,
among other things, al ship building, while the readjustment of our balance of
payments sees in the increase in seii freights one of ils most important factors.
Article XXIV marks the beginning of a list of general rules, concerning. among
other things, the matters where Ittily and the United States reserve to themselves
a wide freedom of disposition, regardless of and without prejudice to the commit-56 ELETTRONICA SICULA
ments undertaken with the Treaty itself. Paragraph I of Article XXIV under
letter(f) deserves special attention; itspecifiesthe mutual position of the Parties
vis-à-vis the commitments stemming from their being memhers of the Interna-
tional Monetary Fund. Thus the Treaty solvesthe possible casesof incompatibil-
ity among the clauses contained therein and those of the Washington Agreement
of 1945 which set up, on a plurilateral basis and with the participation of ltaly
and the United States of America, the International Monetary Fund.
Paragraph 3 of Article XXIV lists the cases where the most-favoured-nation
clause isno1applied; in this list, hasically, there isnothing new, sinceinternational
practice is favourable to the imposition of most of the limitations set out in
oara~raoh 3 of Article XXIV to the aoolication of the most-favoured-nation
clau;. iqowever, the specific remark c&tained in the Treaty aims at avoiding
possible misunderstandings and conflicting interpretations of a rule of interna-
tional law which is still purelycon sue tu di na^^.
Possible controversies on the aoo..cation of the Treatv oertain. under Article
XXVI. io the iompcicncc of ihc Inicrn.ii~on;ilCùuri of ~;\iicc. unlesr thc Pirric.
de 1) ciilc ihcm uiih orhcr pc~ceiul riic~ris.This is pcriciilv in compli.ince
u,iih uhai is set forih in ihc L'niird Ultion, Chdricr. trhiih rcicrs in ihc 1nicrn.i-
iinnal ('ouri oi Justice ;ilthe conlro\crsics of a judiciül nalurc. iianicly. those
u,herc ihc claini of one Pdrty 2nd ihc rcsir1:in.c c~iiheoihcr :ire hscd <inconirete
elements represented by objective rules of international law.
In the last article, apart from the exchange of Ratifications to be carried out
in Rome, the parties agree on the duration of the Treaty which is set as follows:
ten years as of the date when the above-mentioned exchange of Instruments of
Ratification will take olace. However. a condition is added in nar. ..nh 3 of the
\:*id:irii:lc. ~onccrtiiri~ihc ctpir:itirin Jdie a\ defincd in the prct iou, p.ir.igr:iph.
ihe pariici prùvid: th~i, ïor ih: Trcni! io he con.iJercJ icrminiicd .IIihc enci
oi ihr tcnth ,car 3% ni ihc d~tc 01ils cornin2 inio for:c. one ùi ihc Ii:iriicaiIl
have to express, one year before the expiratTonof the said one-year:period. its
intention to this end, otherwise the Treaty will remain in force until one of the
two States notifies ils will to consider the Treaty terminated with one vear's
notice.
The content of the Protocol is explicitly considered as an integral part of the
Treaty; it concerns some specifications the contracting Parties deemed useful to
set forth, in connection with some provisions contained in the Treaty. Thus,
paragraph 2 rules out, among the privileges granted to the citizens of one of the
two Parties in the exercise of their commercial or industrial activities on the
territory of the other Party, those privilegesStatesgrant to their public enterprises
in the form of subsidies and aid for the suoolv o...oods a.d services to the
Goicrnnicni. aiid gcncrall) ior puhli: endr.
Pdragraph .Ihas a similsr conirni. iipro\ides i;ir the c\iluai.>n irnm ihe frcc
exerciseof professions on the part of the citizens of both nations on the territory
of the other State, professions whose members are appointed civil servants by
virtue of law.
Paragraph 5 contains an obvious exception, concerning the safeguarding of the
secrecy of military information in the field of freedom of publication and infor-
~ ~ ~ ~ ~ ~ ~ ~ ~ ~
On the whole, these rules emphasize the fact that, though granting to American
citizens inltaly and to Italian citizens in the United States a broad-based freedom.
the Treatv confirms the absolute resoect of the sovereientv of each State. and
guarantees the free exercise of the funclions entrusted'lviih the Governments,
especially in those matters where the measures of State Authorities pertain to
public security and domestic order. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 57
The provisions of the Supplemental Protocol are an integral part of the Treaty
as well. They are justified by the particular nature of the post-war economic
situation. esoeciallv with reeard to Our Countrv. Therefore. if manv rulçs in this
~u~~lcmcnt~l~ru;ocol prdyide eaccption, io Cheuncs pre\iousl) ;ri I;>rth.ihis
is natural ~nd üdrnissiblc. cven ihtiuph ii mii) ÿppcar ici run counier to normal
procedures in the field of treaties.
The reservations raised by the parties concern in the first place control on the
commercial exchanges between the two parties, and precisely the adoption of
import and export quotas; provision is made for four specific cases wliereit is
possible to waive the rules contained in paragraphs 3 and 4 of Article XIV; in
this case, each ofthe two States can impose on the goods directed to or coming
from the other State stricter quantitative restrictions than those imposed on the
same goods directed to or coming from third States; the assignment of the
proportional quota, moreover, can be made independent, in the same cases, from
the assessment of the volume of exchanges that have taken place in the previous
period. These reservations allow Italy to avoid the damage deriving from scarce
availabilitv of foreien currencv and ils balance of na.me,ts deficit.On the whole. ~.
quo1353rc niIl .in ctlecti\~crcniïdy i<ithe triidc b;ilanîr dclici. the Iimii~imp<>rcJ
on irnports end up pri>poriiim;illyjcop.irdi~ing r'xporls. Hui the quoias iniporcd
on imoorts bv the various countries can. in casessuch as those ~rovided for bv
pïrïg;aph> Ïdnd ? of ihr Supplcniental Proi<)iol.he of hclp io tic inirinationsl
halince. crpeciiill) if the) ;illoi:t.in thr.c~scof Iialy. the ux of non.~.onvcrrihle
currencies that have been oilinp uo in the meanlime:
Further on, the Supplementd @rotocolsets forth, in the field of expropriation
of goods belonging to the citizens of the other State, the procedures that will be
followed by ltaly in the payment of compensation to ~rnerican citizens, and fixes
the exchanee rate that will have Io be aooli...~ ~ ~
~he~~rëgy ends with this "sef; definition; an Exchange of Notes carried out
between the Reoresentatives of the Italian Revuhlic and of the United States of
America on cuitural relations is attached to'the Treaty itself. The two States
undertake to promote closer relations in this field, through the interchange of
professors, students and professional and academic personnel so as to facilitate
and stimulate the mutual knowledge and study of institutions, literature, lan-
guages, etc. This aim is in compliance with the United Nations Charter, on the
basis of which the Members envisage, among other things, through the Economic
and Social Council and Unesco, i>fwhich ltaly is a member too, the development
of mutual cultural relations.
Honourable Deputies: The Treaty submitted to your approval is extremely
useful to Our Countrv. It is the hest means for the safeeuardine of the interests
~~-
of Ourcountrymen in the United States, and is al the same lime an appropriate
insirument for regu. .ing our cominercial and maritime relations with the United
States.
The Treaty, guaranteeing absolute equality of mutual treatment to the two
Parties, represents a further step towards the return to normalization in our
international relations. For ltaly to resume the place it is entitled to in the great
community of States, it is necessary - on Italy's part - to comply with the
principle of international solidarity, which is constituted above al1 hy a close-
meshed net of economic agreements.
ThihTrc.11)i, in in\truiiient of pcÿcc. IILL.JI Ire\,iou. tr:idc Trs~tic*c$incluJeJ
hy ltal) ir,im 1915onuardi: itJims .II:ih.ind,~n~ng the protç~.tii>niriryrieni whilc
guaranteeing to Our Country at the same lime the safeguarding of ils particular
interests arising from our abnornial economicsituation. By raiifying this Treaty,58 ELETTRONICA SICULA
Ilal) will prove once again ils rleterminalion to rcco\er ïrum lhe collapsc cau,ed
by ihr. war and ihe peaieful intentions underlying ils Forcignpulicy.
Arricle 1
The President of the Republic and the Government are respectively auihorized
to ratify and to enforce the following Agreements signed in Rome, between the
ltalian Republic and the United States of America, on 2 February 1948:
(a) Treaty of friendship, commerce and navigation;
(b) Signature Protocol;
(c) Supplemental Protocol;
(dl Exchange of Notes.
Article 2
This law cornes into force on the day of ils publication in the Ojicial Gaieire. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL
Document4
[Italian lexrnot reproduced]
Report of the Committee for Trade Treaties and Customs Legislation on the
Draft Bill presented hy the Minister of Foreign Affairs (Sforza), in conjunction
with the Ministcr of Justice (Grassi). the Minister of the lnterior (Scelbal. the
hfiniiicr ai ihc rred\ur!. tl1r'li3j.the Minirierdl. tinsncc (\:inoniJ. ;hc ~inister
of Indu,iiy and TI;& (I.nmb~rdu I\an Sldiico). ihc Sl~niiicr tifDcicncc (Ricci-
drJiI. ihc Mini,tei oi the Merchdni Marine tS~raea11.the Slinisier al 17<)rcien
rade (Merzagora), and the Minister of ~ahour and social Security infa fa ni;
Sessionof 17 December 1948
RATIFICATION AND IMPLEMENTATION OF THE TREATY OF FRIENDSHIP TR,QDE AND
NAVIGATIO NF,THE PROTOCOL Of SIGNATUR E, THE ADDITIONAL PROTOCOL AND
OF THE EXCHANGE OF NOTES AGREED IN ROME, BETWEEN ITALY AND THli UNITED
STATES OF AMERICA ON, 2 FEBRUARY 1948.
Presented to the Presidency on 2 March 1949.
REPORT OF THE MAJORITY
Honourahle Colleagues. The new "Treaty of Friendship, Trade and Naviga-
tion" hetween Italy and the United States, which issubmitted to you for approval,
is of particular significance since it is the first wide-ranging and general treaty
since the war to have been negotiated hy us on a footing of absolute equality.
The new instrument is ch~ ~~terized bv the hroad scooe and the modernitv of
lis \tructurc Itctrntdins c13.ise\rcicrring to crt:ihli~hmcnt(Arts I-XIII), tg>iradc
(Art, XIV-X\'lll) .<nt1 nd\igailori ;ind irïnrii (:\ris. XIX-XXIII) The 1're.ii)
i~c<>mplctcd h) ihccurtoi~i;ir! gciicrhl:in* 1ili:ilpro\i,i(>nr (Aris XXIV-XX\'III,.
;IPri>i<>,xd>nld ;in :iil,litionrl Prolocol \\,hichi~>in integrdl pari ui ihe Trc.ii)
ii>r.l:\ljo annetcd i,iihc Treüiy i.dn c\ch;iliec ni Soicr rcierring io the openinp
of neeotiations concernine thestioulation of cultural aereements. In fact. on
18 ~ccember 1948 there Tollowed'the signature in ~ome of a special culkral
a.reement,.while negotiations referring to a general cultural agreement are still
in progress.
The importance of the new instrument and the advantage accruing fiom il to
our country are due not only to the above-mentioned hroad scope of the relations
regulated in it but also and principally by the approach made to the establishment
of such relations.
A, ii;iir.J in ilic Pre:<mhlc.ihc Trcdiy ir "gcncr.iII) Jnd unciinrlitiondll) bi,cd
.ln the principlci <blnaii~iinlirc:iinicni 2nd of thxtifthe mdsi-fid\ourcd nation"
Ths \aliic oi this dpprodch ir qulic dppdrcnt. enburing 3s itdoer the Jutuindtic
2nd i~ncondiiicinalc\icnsii>n i>i'dIh<nctiii grciritcdorr<ihcgrani'd hj th,- Lntted
States to any third country, From this standpoint the various clauses of the Treaty should be examined to
ascertain their scope fully and to makc an adequate appreciation of their ad-
vantages.
However, kfore proceeding to analyse the individual provisions of the Treaty.
some furthcr gencr~loh\cn,iiions seem IO be called for.
The ncu Ire;tiy of l'risnd>hip.Trsde and Sa\,igïtion dilTersradicilly from ihe
Italy-Uniird Siaie, tradc and nx\ipïtion trcaiy of 26 Fcbruar) 1871. It uas not
possible to resurrect this old treaty, which in any case was reciprocally allowed
10exoire on 15November 1937.
Théinstrument signed on the "twentieih day of February" of 1871had aged
irremediablr and now reflected asituation of relations and exchanee- which had
since changed radically.
With regard to economic relations, the 1871Treaty followed a distinctly free-
trade approach, which made it virtually inapplicable when economic policy began
gradually to shift towards protectionism and autarchy, nor was it compatible
even with the new principleson which economic relations between States should
be based. These new ~rinci~les tend towards multilateral exchanees. althoueh
uithoui c~çludinyre,tr~riive;lauscs intendcd. particularly during the cxrl) stxgFs.
Io saleguird \pri.iiic nesds Iinkcd tt) spccial currcnc!.. production and I<ihi>ur
conditions in the several countries.
Even the statutes of the international organizations created after the war to
implement economic collaboration bctwcen nations, such as the International
Monetary Fund and the International Trade Organization reRect the need for
such flexibilityas is required by environmental and market conditions.
As stated above, the rigid framework of the old treaty did not allow for this
necessary flexibility,particularly as far as tarif policy wasconcerned.
The prescnt situation, which is the outcome of ihe protectionist régimeset up
during the dccadc between 1929and 1939.can only bc changed gradually.
The forthcomina Annecy Conference should mark a further decisivc steo
forward towards the reduition of customs tarifs. These results, which ma;
legiiimatclybe expected, together with thosc already obtained in the multilateral
agreements. should encourage that additional expansion of international tradc
on which the chances of recovery of our economy depend.
This situation, which has slowly but surely becn constructed since the Second
World War, forms the background to the new Italy-Uniied States Treaty. The
Treaty is bound to bccome an important factor in the economic relations king
organized on a multilateral basis.
The unconditional principle of most-favoured nation, on which the newTreaty
has been seen to be bascd, represents the levellingand unifying mechanism by
means of which the provisions of the bilaieral treaties, already negotiated or to
be negotiated, by being applied automatically to the contracting parties, allow
the basis of agreement to be extended and a multilateral syslem to k gradually
built UD.
As poinied out above, the merit and distinguishing features of the new instru-
ment are the broad scope and modernity of its structure comvared with that of
similar previous treaties
This mus1also be interpreted as a relieciion of the new conception underlying
the Charter of the United Nations which is a marked improvement upon the
Pact of the Leaguc of Nations in that il cxplicitly acknowlcdgesthe interdepen-
dence between the economic-social factor and the political factor, together with
the decisiveimportance of thc former vis-$-visthe latter (cf. Art. 55 of the UN0
Statute). DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 61
These hroader and topical conditions are addressed not only by the trade
clauses of the Treaty but also by those referring to estahlishment. Also this
section. as we shall see, is afiected hv new tendencies such as those referri-e Io
ihr.guarantecing iiithe i~nd.imcnial irccJonir Thee priniiplc,. irhich ;,rc niurc
;ind mort lirml) esixbli>hsrlin uorld conhciousnesi and more diid more preci,cl,
embodied in international statutes, form the basis of several provisions cintained
in the Italy-United States Treaty, for instance, those guaranteeing the freedom
of worship, of information, etc. (cf. Art. XI).
However, the wide-ranging and modern character of the Treaty outlined so Car
must not he taken to mean that if.can contain clauses which, hy their nature, are
extraneous to the matters dealt with in the Treaty itself, namely estabiishment,
trade and rtavigation.
The Treaty does not contain political clauses. The title of "Treaty of Friendship,
Trade and Navigation" corresponds to a traditional formula in long-standing
use. It should also he noted that the Treaty is a trade treaty and not a trade
aereemeni. In other words. it reaulates the basic a~oroach 10 he followed in the
trade relations between the two-countries, while the actual determination of the
manner in which individual exchanges areto he carried out is left to specifictrade
agreements.
Therefore, although containing several general principles of fundamental
importance, the Treaty does no1 directly regulate the prohlem of customstarifs,
This matter will he eoverned bv soecific technical aereements orovidinil for the
implementation of the fundameitai principles emhodi'edin the ~~aly-~niiidStates
Treaty and the multilateral vacts. As pointed out ahove, favourable results
conceming the solution of these prohlems are expected from the forthcoming
Annecy Conference.
Lastly, itus1be pointed out that the Treaty is a treaty of establishment, that
is, it contains clauses regulating the treatment guaranteed to citizens of one State
residing in the territory of the other. Naturally, these clauses are of particular
importance for Our emigration, that is, for our fellow citizens resident in the
United Statcs.
However, the Treaty is not an emigration treaty or agreement, that is. it does
not contain provisions referring to emigration, as they would be out of place
in a treaty of trade and navigation establishment such as the one signed on
2 February 1948.As is known, the problems related to emigration in\,olve the
examination and regulation of technical details which are normally emhodied in
special conventions hetween the States concerned.
The issue of a possible increase of Our migratory flow towards thr: United
States is therefore not mentioned in the Treaty provisions. This is a highly
complex issuealso hecause the immigration of foreigners is regulated hy complex
legisbationin the United States (immigration laws) which regulates the migratory
flow from other countries in the world by means of a quota system. The revision
of the quota assigned to ltalian emigration involves a revision of the entire
system, so that the rtalian aimscan only he achieved through painstaking negotia-
tion. This does not mean that the problem should not he raised as soon as
possible and that the Government should not he urged to evaluate the importance
of the matter and make every efiort to find a solution. Partial solutions can in
the meantime be found in occasional circumstances, such as the utilization of the
quotas falling due during the wartime period, and it is no exaggeration to statethat OUF emigration needstoday to receive greaterunderstanding from Amencan
ouhlic ooinion and from t~e Un~ ~ ~States eovernmeut authonties.
Hxting thus Jewribcd the sharactcri~tic dpprw.ich iollourd in ihc neii Tre;ii),
and illustrnted thc ~rincinlc\ on uhizh iti, hÿcJ .in* the matiers IIdcalr uiih.
the various provisiXns making up the text will now be outlined. The evaluation
of their scope will certainly be more effective if the examination keeps to the
framework of general considerations forming the introductory part.
The examination may becarried out by grouping the various clausesaccording
to the topic referred to, namely:
(1) Establishment (Arts. 1-XIII).
(2) Trade (Arts. XIV-XVIII).
(3) ~avi~ation and transit (~rts. XIX-XXIII).
(4) General and final clauses(Arts. XXIV-XXVII), Protocols and exchange
of notes.
1. Provisions regarding Establishment (Arts. 1-XIII)
z\\ .I uholc. ihc>c provirionr Jo not dillcr .ipprcci.ihl! irirni ihosï ncirmall!
contained in jiniilür tre.iiic, The! are <I~,D~CIJ iIterc,i io It:i113nciii7ens rc\iJina
in the United States in so far as they guarantee the latter will receive mosc
favoured treatment with regard to the free conduct of their work and their
activities.
In this matter the Treatv is hased on the orinci.les of.national treatment and ~~
on thai oi the mo\i-h\ou;e~ nalion Iii p!riiciil;ir. rpc<iii< ackiioiiledgcniciii ii
accordcd to the Irec cxcrcisc oi the profc~r~ion>(Art 1) and social in,ur.incc
henctits h>\e heene\icnded 10 cirileni of thc other p.irt) to the irai? (:\ri. XII)
The trec exercisc ùi the pr,>ic,jion h.i. an ctception in ihc Iegil ticld. iri th31
the e!.r.rciie dflhb prufcs?ion In the Cnitcd Stdlcj 13c~niiderrrlto bc in:~>mn~tiblc
with being a foreigner. The substanceof the relevant provisions contained'in the
Treaty consistsin the acknowledgement of that the fact of being a foreigner does
not in itself preclude anyone from exercising a given profession or activity.
It is a known fact that the reeulation of the exerciseof orofessions and othe~ ~ ~
.
;icti\iiic~ h! iore1gnr.r.cimier !riillin the PLIT)ICO. the Iegiil:ili<~ni)ithe \.iriou,
,utes ;omnri,ina the \:nion olhorih am cric;^ tl<ia.c\cr. 1115 al$<>i knoun CA;^
that internationa treaties have,asit were,the force of federal law inUS constitu-
tional law: their provisions prevail over those of the legislation of the various
states of the Union. The recognition obtained in favour of ltalians resident in
the United Statesis thus guaranteed also against any restrictive provisions con-
tained in the laws of individual states. This concession stipulated in the Treaty
is al1the more significant in that the US federal authorities are usually loath to
interfere in matters which are the resoonsihilitv of the individual states.
With regard to the extension of sohial secur;ty benefits to citirens of the other
party to the contract, while it is true that in the interna1legislatiou of the United
States provision has already been made for this extens'ion to the benefit of
foreigners, the fact of including il in the Treaty implies that such concession,
hitherto frce and unsolicited and therefore revokahle by the US Government, has
now becomean internationallv contracted oblieation.
As alrc.id) niciiii<~ne.l.the Trc.xi) ,lac, iititconi.~in üii) cliu,es rcicrring io
cnii&r:ition. Thr.rcforc the right yrdnied id LiiiLcn. <IVone piri!. 111 ihc trc3i) io
enter. re,~Jc 111and IT;I\C~ frceI\ Ihruiich the ierriior\. oi the oiher I$~nJcrjiood
by the United Statesto he subhct to tL applicdtion.of the immigration laws. At
the request of ltaly the new paragraph 4 was added to Article 1 in order to DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 63
guarantee the right of surveillance offoreigners resident on the territory of the
State and the right to expel them for certain reasons. These are guaraniees that
no State would aeree to foreeo for elementarv reasons of securitv.
Also noteworthy.are the p;ovisions govern:ng the activity of jiridical persons
who, in the present economic and commercial conditions, have much more
extensive and important tasks than those of sinele individuals
Thc spc<iIi<cr;inilnaiigi,>fss\cr:<loi thrse cl.iu\c. could le.IO ihc rrroncouç
inierprci.~tionih.11thc irs;itn?cni .~ciordcd in ihc juridic.il pcrwni 2nd iirsocit-
tions of the other o.rtv.are not uerfectlv reciorocal. ln this connection it must
k pointcd ijut ihat ihc :ippirciiIxk oi rcciprocit) i\a ncccrsdr) cdnquciicc
<iiilie fc.lcril natt.rc oi onoi ilie iuu pariici io the ireai!. naniclv. the IJniicd
States. A similar situation and solution is found in the e~tablishin~and çonsular
Convention between ltaly and Switrerland. It would in fact be inadmissible that
in one state or in one canton of a Confederation a foreiener enioyed more
favourable treatment than that accorded to a citizen of another sta& or canton
of the Confederation itself.
With reference to the orotection of eoods. the ~rincioleof exorooriation with
guaranteed payment of "fair compen&tion", no;mall; embod;ed in treaties of
establishment (cf. for example the Italo-Soviet Treaty of Trade and Navigation
of 4 February 1924,Art. 6), has been developed to a considerable exteiit in the
new Italy-United States Treaty. This was considered necessary also in view of
other orohlems such as currencv problerns which arise out of the inveslment of
capitai abroad. The complex O? provisions concerning these problems aims al
ensuring and encouragingcapital flowtowards Italy. The advisahilitv anciimpor-
tance of this clause isauite e;ident becauseof the oeculiareconornicand financial
structure ofour country, in which the accumulation of savings does not corres-
pond to productive needs or to any programme of full employment. The influx
of foreign capital represents an indispensable supplement for our country.
The provisions contained in Article XI are based on the principles of the
fundamental freedoms of man. They are in full harmony with what isgnüranteed
by the new Constitution of the Italian Republic. With regard to the freedom of
the press and of information, expressed in Article 21 of our Constitution, it
should be borne in mind that paragraph 5 of the Protocol annexed to the Treaty
makes express reservations for the needs of military secrets.
Also the provisions of Article XI11,intended to solve a number of problems
related to the militarv service of citizens ofone.oar,v to the treatv resident in the
territory of the othe; Party, reference can be found in precedingtreatie:; (cf. for
instance the Italy-Argentine Convention of 8 August 1938).
II. Trade Provisions[Arts. XIV-XVIII)
The clausesreferring to trade are aimed at eliminating constraints and discrimi-
natory measures. Following the criteria on which the Charter of the International
rade Organizalion was based they indicate a way, a direction, in that the
economic and political circurnstances do not allow abrupt changes in economic
policy but cal1 for gradua1 steps in order to shift {rom a state of bilateral
agreements to one of multilateral exchanges.
Having asserted the principle of the most-favoured nation with regard to the
aoplication of customs duties and taxation. a commitment is made also to a non-
obligations accepted under~theTreaty with the provisions of the Agreement on64 ELETTRONICA SICULA
the International Monetary Fund. The exceptions take into special account the
economic cycle characterizing the post-war period.
The clause dealing with trade concludes with paragraph 3 which deplores
business methods in whicb cornnetition is limited. access to markets restricted
and monopoli\tic cnnirols enc6iurïgcd Provirlon is iherefiirc mïdc for cach pïrty
in the Ireitt)IOalicnd consultaiions at the oihcr p~riy'srcqucsi should any such
situation be complained of.
111.Provisions referring ro Navigarionand Transir(Arls. XIX-XXIII)
Also the content of these articles does not differ substantially from that of the
corresponding provisions contained in similar treaties. Provision is made to treat
the merchant vessels of the Other Party to the Treaty on a par with national
vesselsand to extend to them the most-favoured-nation treatment. For warships
and fishingvesselsthe norms contained in the Treaty correspond both to interna1
ltalian legislation (cf. for instance Art. 20 of the Italian law on neutrality,
approved by Raya\ Decree No. \4-\5 of 8 Ju\y 1938) and to the international
conventions (see Arts. 12-13 of the Hague Convention referring to the rights and
obligations of neutral Powers in the case of war at sea).
IV. Generaland Final Prosisions.Prorocolsand ErchangeofNotes
Article XXlV and the additional Protocol contain the exceptions to the applica-
bility of the Treaty noms; the purpose of these exceptions is to reconcile the
present needs of the ltalian economy with the economic policy directives under-
lying the Treaty, again for the purpose of ensuring that the Agreement fosters
the free development of the economy on an increasingly broad basis and with
the graduality required by the peculiar situation having arisen after the war.
Annexed to the Treaty is an exchange of Notes referring to the opening of
negotiations for the purpose of establishing cultural agreements between Italy
and on 18December 1948a special cultural agreement was signed between ltaly
and the United States. and a general cultural agreement is currently being nego-
tiated.
Honourable Colleagues. The new Italy-United StatesTreaty, which the major-
itv of the Committee for trade and navieaiion treaties submits for vour annroval.
iigenerally and unconditionally based,as is expressly stated in théintro'd;ction;
on the principles of national treatment and of most-favoured-nation treatment.
It represents an important result of the efforts made by ltaly to regain ils place
in the international field and is to be appreciated also for ils modem approach
and the discernment of the technical rules contained in il.
The principles of equality and reciprocity on which the new Treaty is based
will be of certain advantage to ltalian interests. There is no doubt that the
recognition of the equality and reciprocity of rightsdoes not remove the inequali-
lies of structure which exist between the scveral countries al the international
level. iust as the orincinle of iuridical eaualitv of individuals does not eliminate
the natural differences'of caiacity and oppo;tunity which exist between indivi-
duals and which laws can only correct and compensate for. but never eliminate
. ,
Iniern3iional ;igrecmenti mu,! 1;i)the found;ition>iur ;throddsr-hiscd sol~da-
111)ïimcd ai rcducing ihc unrcmoiïblc difkrencr.s dcriving l'romihc romplex of DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 65
geo-political conditions of the individual States forming the internatioiial com-
munitv. This is the aim of the new Treatv. which basicallv sets out to be an
instrument for the dciclopmcnt of interniit;on~l rtl~tion~t<i~gu;traniccihc proi-
pcrii) 2nd p~ugr~w 01'~.eople. aiid io .;trcnpthcn ihz pr'.icefulrelation:. hetbieen
ihem..
Campilli, Rapporteur for the majority
REPORT OF THE MINORITY
Honourable Colleaeues. The considerations that have led the minoritv erouo
of ihe Coiiiniiiicr toLiahlc lis ou" report i~h>irntiaiing ihc proposal IO \iiir'
Xpsinst ihr r.tiificarion of the prcssnr Tre~t) i,in hc suninicd up in the iiiIIo\iing
points:
Point 1. Strictly speaking, the Treaty is not a treaty of trade and navigation.
The Treaty is a separate entity, but at the same time takes for granted the
preceding ERP agreements and its spirit foreshadows further developments in-
volving not only economic and trade matters but also the future trends of our
foreign policy.The economic conditions of ltaly are such as to lead to a positive
opinion heing expressed on every trade treaty negotiated with any power whatso-
ever in the reciprocal interest of Ourcountry and of the other party to the treaty.
Such treaties, hased on reciproc;il advantage and on the scrupulous respect for
the economic and political independence of the parties thereto, are alw;iys to be
preferred to diplomatic instruments that are ultimately restrictive of economic
and political independence, as was the case of the ERP agreements. Unfortunately
the present Treaty continues the policy begun with the ERP agreements. The
report of the majority states that "the wide-ranging and modern characier of the
Treaty", "must not he taken to inean that it can contain clauses which. by their
nature, are extraneous to the matters dealt with in the Treaty itself", namely
esiablishmenr,trade and navigation:however, the report itselfcannot but mention
the interdependence which exists between the economic-social factor and the
political factor as one of the characteristics of the Treaty.
Together with the bilateral agreements and the ERP agreements, also the
present Treaty is an instrument which, by means of a number of articles (Arts.
IV, VII, XI, XIII, XIV, etc.) approves the increasing economic and political
penetration of ltaly by US imperialism.
Point II. The Trcatv is Dresented in such a wav as to aDDearto be based on
principles of absolute équility and reciprocity. In tact, suchéquality and recipro-
city are false, not only hecause the great difference in economic power between
the two Countries and the absence of euarantees and saferuards for the Italian
economy ohjectively lead to a situation in which equality and reciprocity are
purely formal, but hecause of a numher of other considerations. For instance,
when mention is made in Article IV of the right granted to citizens and juridical
persons and associations of each of the parties to the treaty of carrying out
research and exploiting the mineral resources of the other party, it is clear that
this article is10 the almost exclusive advantage of the United States, since no
one would believc that ltaly could reciprocally carry out research and exploit
mineral resources in the United States of America. The same can he said for the
exportation and movement of capital, which normally takes place in one direction,
in favour of the United States of America. This is due in the first instance to the
existence of an obvious actual inequality and because no defence of tlie Italianeconomy is envisaged against certain particular forms of penetration of ltaly hy
American caoital which are no1in the national interest. Here we are dealine with
an objective ;nequality hetween the two economies and it cannot he reas&ably
claimed that this inequalitv in itself should be an obstacle to the trade relations
between economicall; weakçr nations and economicallv much stroneer ones: al1
that it is intended toassert hcre is that, in such cases,'a trade treat; safeguards
the interests of the economically weaker country in so far as it contains a numher
of measures of orotection and economic euaranlees in favour of the weaker nartv.
which system Of protection and guaraGccs is not to be found in the piesent
Treaty.
ltis not therefore onlv to the aforeeoine that we reïer mainlv when we state
that the Treaty lacks thécharacteristi& ofequality and reciprocity; we refer to
the fact that to a number of reciprocal concessions provided for in the Treaty it-
self actually exclusivelyfavours the United States of America and cannot favour
Italy, since they are obstructed by a numher of United States laws which are not
and cannot be modified by the Treaty itself. For example. Article 1 lays down
that the citizens of each oartv to the treatv will he entitled to enter the territorv
of the oiher p:irty and r&idc;ind iravcl frkl) in ihr uid icrritory Hui iihilc thé
3riicle in qJc,iion ir \alid for CniicJ Sintes ciii~cnrcmning IO ltdly itc.innot hc
itilid for Iialidn ciii"en\ wishi-r to-o to the Cniicd States. ior uhoiii the ,e\crc
CS ininiigration 13\15continue 10 cxisi. Furthcrmorc. ;ils0 for Ii;il~.incitiLenrnoi
migr:iiing ICI the UniieJ Siair.,. and e\cn fi)r th.^ mercl) rcqueliing :iirlnhii
iisr. the rclcv;iiit scicrc 1;iusof ihc Unitcd Siaics :i...l\.iul.! to Itili;in citircns
who are denied visas for both immigration, temporary stay and transit without
being required to fiIlout the extremely detailed forms which provide a hundred
pretexts for refusing the visa and to fiIlout which WC ltalians are even obliged
to undergo the humiliation (and we are the only country in the world to be
subjected to this Ireaiment by the United States of America) of declaring in
writing whether we helong to the southern Iialian ruceor to the northern ltalian
race. Article 1of the Treaty of friendship, trade and navigation is thus doomed
to remain inapplicable and it does not seem out of place here to point out that,
desnite the nroclaimed rieh- to enter. 'resideand travel freelv in United States
territory extended to al1ltalians, in the past few weeks even two colleagues, the
Deputv Michele Sala and the Senator Mario Palermo were reiused an entrv visa
Jnihcir jcr\iic pa3,poris uilhout furthcr crpl3n3iion Equally spcci~u; and
inetTcciive isp3rïgraph 2 of Artislc 1.which :illegcdlygrants rec1proc31r~ghts IO
thc citiLcn. of ihc tuo couniries. and thcrcfore Io Iiiliilciii~cnsin the IJiiitcd
States, ta freelycarryon professional activities. exceptthat of the legal profession.
It has heen assertcd in the Foreign ARairs Commission that this involves the
recoanition of an ltalian academic aualification for everv nrofessional activitv
oth& than that of the legal But this is not truée'ither.Also as far ai
the recognition of the academic qualification (and this observation is al1the more
true as 6r as the exercise of the-orofession is concernedl the laws of the United
States are so designed as to renier Article 1of the ~reat~ ineffective. suffice it
to recall, for instance, thatbv means of an internationally inadmissible orocedure
the state of Connecticut reiognizes as valid only thregdegees, granied by the
Universities of Naples, Rome and Bologna; the state of New Jersey recognizes
as valid the academic qualifications awarded in ltaly to American citizens and
not those ohtained by ltalian citizens, etc. The report of the majority claims that
"international Treaties have, os ir were, the force of federal law under the US
constitution: their provisions prevail over those of the legislation of the various
States of the Union". The report goes on to say that "the recognition obtained DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 67
in favour of Italians resident in the United States is thus guaranteed also against
anv restrictive orovisions contained in the laws of individual states".
;\~cording 1,;the report ol'iti: inïiorit!. this L<>nic,sidn<iipulated in ihc .îrc,ii)
is .il1 ihe niorc <ignilic~ntin ihat the US icJcr.il :iuihoriiics ;ire u\uall) Iairh tu
inierl'crc IIIni.iitcr~ rcscr!ed 1,)the cornrietcriceof the individuil ri~lss" Awri
from the fact that we dispute the assertion that international treaties have "as ir
were" the force of federal law in those matters in which US legislation grants the
individual states the right IO legislate, anyone with even a supenîcial knowledge
of American leeislation and oolitical life knows verv well that it urould be
imp<>ssiblc 1%)giiar,iniec ihc c~nji,ynicntb) for:ign Litixni iii~ piicn ndiiun31iiy
oi pri\ilcges JcnirJ is iorcign Liiizcn\ <if~nother n1rion3liiy This inipo~s.bilitv
is ~articularlv ob\,ious in the case of Italians who, in the few soecific cases in
wcich they are considered as a nationality different [rom the others (see, for
example, the immigration laws) constantly receive worse treatment than the
citizcns of other countries. The United States legislation has recently made
exception only for the citizcns of territories considered as colonies or quasi-
colonies of the United States, such as Puerto Rico or the Philippines; iriview of
the specific nature of these exceptions, it would be odd if they were cxtended to
1131)
Iikcuisc. ihc rights ;ind pri\,ilcgcsgrinted to Ii~li3nciii7en, iiip;ir.igiiph 2 si
Article 1, i,~getherivith the right. grdnieil hy p;ir;igraph ? uf Article XI. uhich,
in iJJition coniiiicrcial. indu~iri31.pro:c,iinfi. tinanci;il. ~ricntifi~cJuc~t~on;il.
relieious. ohilanthrooic and orofessional activzes. makes orovision also for the
right to ;;gage in aitiviiies kch as the editing, cokmnnica'tion and collection of
information intended to he made public, the use of the press, radio, cinema and
other media and any other activity of this type reciprocally allowedto American
citizens in Italy and to ltalian citizens in the United States, as usual is applicable
only to American citizens in Italy. Reciprocity is non-existent hecause, as far as
Italian citizens resident in the United States are concerned, al1activities of this
kind, as in the case of al1other breigners, are regulated by the strict provisions
of the fundamental US legislation known as the Alien Act, which categorically
establishes that any foreign citizen carrying on this kind of activity in the United
States at the behest of their own countrv or in anv case at the behest of foreign -
xgenclej or inJi\idu.il\. musi hï rcgiricred in the U~iitc(lStates .i,ü f,rr,q~i ,Iqi,nl
iiiih al1thc c~.~n~idcr;ibilIc~\iJ\,~iit;igesih.11thi, tcrm cntail, This is ;iI.iu rihich
has no equivalent in Italy or any other country, since it can in no way be
compared with the common law and order provisions applied to foreigners, which
involvequitc normal controls and imply at least a criterion of reciprocity between
al1States.
The Alien Acl, on the other hand, has an incomparably wider scope and can
affect the activities of foreigners resident in the United States in whatever form
they are carried on, suppress them, restrict them or change their orientation.
Therefore, the freedom of the press, radio, cinema or other media, guaranteed
for the Americans in Italy, will take on a completely diflerent form in America
since, however the provisions of paragraph 2 of Article XI are formukited, any
attempt to use the press, radio, cinema and other media to express economic,
political and artistic ideas and opinions, the expression of which in Italy is
guaranteed and permitted by the Constitution, will perhaps be pemitted to
American citizens in America but, on the basis of the Alien Acr, prohibited or
even punished whcn carried out by ltalian citizens, as well as by other foreigners,
on the basis of the law against un-American activities in the United States.
With regard to the extension to the citizens of the other party to the treaty of
thc benefits described in paragraph 2 of Article XII (social insurance), it must besaid that the statement contained in the reoort of the maioritv is ,eani,eless. c
namcl!., ihit thii conceshicm.hilherio free 2nd \poniJne,iu\ .ind Ihcrcl;>rcrc\t>k-
able by ihc Amcric~nGoierninzni. hdr ii<~ bcconic iiiinicrnati.~n~ll!~:ccpied
ohlir.aiion b, viriuc of the 1 rr.ÿiv In ihc firii olacc. roc~tlinrJr:lnce ior iurcicncrj
is aïaw of ihe State and not a.free and sp&taneous concession; in the second
place, it is not a concession made to ltalians (as the Treaty makes out) but to
foreigners from anycountry at all. Paragraph 2 of Article XII of the Treaty does
not and cannot change anvthing. therefore. as Faras the ore-enistine situation is
-
concerneil. .is II 1% .ibroldtelb insonieivahlc ior în!.,>nc uith <\en an zlenicni;,r!
knii\i,lcdgeoi Amcriwn Idu ih:ii r6)ci~liniiiran'e 5hdulJ he pr.inicd io idreigncr,
<II'cienen niiion~liiv Inii noi cr.inicd iri icirciancrs iiiiiihcr n.iii~rn;iliiicsThi.
would clash with théfundamental orincinle or~merican lceislation con-ernine ~ ~ ~- ~ ~
forcigncr,, \Ghich i\un.il~cn.ihl)ihdi oiequ:iIii! oiircainicni in<)rdcriocniiiur:i~c
ihe rdpid :lmcric~iii/iti~in and ihc rdpid n.iti<~n;i~ l irimil.ilion\iisll forcigner,
rcjidcni in ihc icrrii<ir\ of the I:niicd Sidic. al Ariicr,~~ t'or ihc 3hojc rc.i,on>
these benefits are extended to everybody and, as far as ltalians are concerncd,
therefore, they can neither be granted nor withheld by paragraph 2 of Article
XII of the Treaty, so that the formulation of the article in question sounds very
odd, stating as it does that the benefits provided for by laws and regulations
establishing compulsory insurance systems »'il1be granted Io the citizens of each
party to the treaty.
Point 111. The irade agreement between the United States and ltaly would
really have been advantageous had it solved in Italy's favour the problem of the
emigration of our labour. In fact, even though this matter is normally provided
for in special conventions, it is not bccause of a formal reason of this kind that
it has been excluded from the present Treaty. It has already been seen that one
of the characteristics of the Treaty is to overstep its economic limits and to enter
the fieldsof political and cultural relations, etc.; since the Treaty makes repeated
mention of the treatment extended to ltalian immigrants in the United States, it
could have treated the prohlem of immigration in general outline, opening up
brighter prospects for a treaty or specific agreement more favourable to Italy.
The truth of the matter is that in this question, the only one in which a real
advantaee to ltalv was nossible. the Treaiv makes no concessions to Italv. It
mu,[ noi he<>\.erlnokcd tl;.iihc r~meurcicliid annu;il iiiimigrÿiionqut~idalloircd
u, is I.irgelyiIli<sor)in ihai, in\i:ad of hcing iillcd hy migriinir :ictudll) $,oiiigICI
the Cnii:il Si,iieh (rom our counirt. iiis iillcclbb ihc ininii2r;iiion oifi;er tiithe
Uniictl Siaic,r ihcnijelver \<ho sciiJ tu C'ubdgir i<>~:irid.I:i'ihc Ii.ilianr rc,idciir
in ihc UniicJ Siaies but niit insIi.ded in ihc quoia. in ordcr io h:i\c 11ic.m incliiJcJ
in the immigration quota and ihus legalize their position, filling the greater part
of the auota without anv mieration from ltalv actuallv takine nlace.
Poin;~~.In viewof thécharacteristics of thk ~reatyand beckse the principles
of equality and reciprocity on which it claims to be based are in many cases non-
existent or purely formal, it would have been particularly important for the
ltalian Government 10have reserved the right to take any necessary measures to
protect the Italian economy and to restrict theeconomicand political penetration
of United States imperialism in Italy. One of the reasons which increases Our
distrust of even the ourelv economic terms of the Treatv is that the oresent
Cio\crnmeni h.ij dispii)ed',iicli dn dcq.iiencnt ~ililudc t<>ihc Cniisd ~t;iicsJnJ
h:ii iin.Ieridkcri:ind coniiiiiicr 16)undcri;ikc ,uch iridc-r~ngingconiniiinicriir
to exclude any government will to intervenc in any way in future in the form of
protective and restrictive measures in favour of the ltalian economy.
This situation further worsens the terms of the contract and increases the
responsibilities involvcdin any ratification of the Treaty. It would appear to be DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 69
no exaggeration to consider a numher of aspects of this Treaty, and of the
relations heing established between the United States and Italy, rather than on
a footing of equality and reciprocity, to he hased on an cconomico-political
footing resemhlingthat of the OpenDoor policy previouslyadopted hy the great
powers vis-à-visChina, with al1the implications and consequences this is known
to have engendered. For these reasons we do not consider that the Treaty is an
instrument working in the interest ofour Country and wehelievethat Parliament
should refuse to ratify il.
Giuseppe Berti, son of the late Angelo Berti, Rapporteur for the minority.
Drafr Bill Draft Bill
of rlie Minister oJthe Commiiree
Arlkle 1 Article 1
The President of the Republic is ldem
hereby empowered to ratify, and the
Government to give full and complete
implementation to, the following
Agreements signed in Rome, between
Italy and the United States of America,
on 2 Fehruary 1948:
(a) Treaty of Friendship, Trade and
Navieation:
Arricle2 Article 2
The present lawshall comein10force ldem
on the date of ils publication in the
Osfcial Gazeire. Document 5
[Italian tex1 not reproduced]
DISCUSSION OF THE DRAFT BILL: RATIFICATION AND IMPLEMENTATION OF THE
TREATY OF FRIENDSHI P,ADE AND NAVIGATION, OF THE PROTOCOL OF SIGNATURE,
OF THE ADDITIONAL PROTOCOL AND OF THE EXCHANGE OF NOTES AGREED IN ROME,
BETWEEN ITALY AND THE UNITEDSTATESOF AMERICA ON, 2 FEBRUARY 1948(246)
Choirman: The item on the agenda is the discussion of the draft hill: Ratifica-
tion and implementation of the Treaty of Friendship, Trade and Navigation, of
the Protocol of Signature, of the additional Protocol and of the Exchange of
Notes agreed in Rome, between ltaly and the United States of America, on 2
February 1948.
1herehy declare open the general discussion.
The Rt. Hon. Pesenti is on the lis1of speakers.
He has the floor.
Pesenti: Honourable Colleagues, the draft hill, which has been submitted to
us for ratification,hears a heart-warming title: it speaks of a treaty of friendship,
trade and navigation. It thus appears, after the various unilateral impositions
that we, 1 Say we in the sense of this Chamher, and not of the Croup that 1
reDresent, have had to acceDt through the various aereements. in o.rtic.lar the
ERP agreement, wehave finallyheenUpresentedwith ayreaty, that is, an agreement
negotiated hetween the two parties on an equal footing, which contains clauses
equally safeguarding the interests of hoth parties to the treaty.
Moreover, this treaty also speaks of friendship, that is, it extends beyond
clauses of a merely economic and commercial nature, in order to establish a
situation of friendship which isembodied in a word dear to al1those, particularly
on our side, who want peace and friendship with al1the nations of the world,
with al1countries, with al1the peoples ofthe world, and thus also with the people
and the State of the great North American Republic.
If. therefore. 1 shall nersonallv show that 1 cannot eive mv con,en~~t~ ~ ~ ~ ~~ ~ ~ ~
ratification of this treat;, it is hécausethe truth hidden beneath the title 1 have
jus1read out is hasically different; because il is neither a treaty nor a treaty which
auarantees friendshio. unless we mean friendshin in the sense of the well~know~ ~ ~ ~
lproverhwhich runs "~od protect me from my friends and 1shall protect myself
from my enemies".
The true situation indicates that this treatv is an instrument which is oart of a
whole set of instruments designed to implement what we consider to be!the will
to imperialisticexpansion of the United States. Thereforealso this treatv, in order
to be understood, cannot be considered as standing alone; and evénif it is
considered as standing alone, il is nevertheless a serious matter and such as to
jeopardize the interests of our Country. But its nature, its seriousness, vis-à-vis
the interests of our Country increase if we consider il, together with the other
instruments, as the expression of this will to expansion, to dominion, of United DOCUMEXTSANNEXEDTO THE COUNTER-MEMORIAL 71
States imperialism. Ail this is ignorcd in the report - whether the ministerial
report or that of the majority by the Rt. Hon. Campilli - which is therefore
unsatisfactory (to say the least) because 1 cannot imagine, particularly on the
part of the Ri. Hon. Campilli, an ignorance of what Iam going to say and of
what will be said also by my colleague, the Rt. Hon. Berti, namely an ignorance
of the arguments we shall present against the ratification of the treaty.
But if this general aspect, this particular characteristic of the treaty, iii so far
as it is an instrument of the will to dominate of the United States, is overlooked
and is not mentioned either in the ministerial report or in that of the majority,
it could be said to represent a political fact deriving from the overall policy of
the Christian Democrat Govcrnment or of the Christian Democrat coalition and
is therefore, 1should say, a desired shortcoming.
But, in my opinion, the report - both the ministerial report and that of the
Rt. Hon. Campilli - contains also technical shortcomings. This is even more
serious since. if the task of the oooosition is to aooroach the fundamental
problems from a general point of VI& with regard to ihe Country's interests, the
task of the maiority should be at least to make a technical contribution to the
solution of such problems; that is 10say, having fully accepted the government's
policy from the oulset, to correct any technical defectscontained in the legislative
measures.
In mv ooinion the Rdooorteur for the maioritv has not fulfilled even this task.
which Shoild indeed be'iarried out by the maj&rity itself.
Allow me. therefore, honourable colleagues, to expressthe reasons underlying
Our disapproval of ratification, that is, to express the redsons for which we
consider this treatv not to reoresent a free aereement - that is. a treatv corre-
sponding to the interests of'both parties -but to represent instead another
instrument serving in particular a single Party, the United States,and which does
not guarantee that the interests of our Country will be defended.
We mus1of course have a treaty of trade and navigation with the Republic of
the United States.Therefore, on the expiry of that of 26 February 1871-as far
back as 15 December 1937 -, and after the war and ils aftemath with which
we are al1 familiar. it is loeical. as I have said, that a new treatv should be
ncg<~tiaicd.Rui what sort oiireat) of nxi,igaii<in and iradc r<iuld iihave ti)bc
in rcally correspond to the nccds of our Country?
1hc Id71 'rrîat) uas a normal tradc and nsvigaiion trcat) therc was no nccd
to soeak of friendshio becausc the friendshio derived from the eood economic
and..trade relations ii set up, from the mosi-favoured-nation clause underlying
the treaty, from the facilities it accorded to citizens of the two couiitries in
carrying on their actual business affairs. Ln other words, il was not a treaty of
establishment or one with a broader cultural or political nature. and it look in10
account the basic inequality of the situation in the two contracting countries.
That is to say, there was equality and reciprocity with regard to trade and
navigation, freedom of travel, of residencein general, of doing anything deemed
necessaryfor trade, under the sameconditions for hoth parties; but il was limited
to these points.
By this 1 by no means wish to challenge the statement of the Rapporteur of
the maioritv that the ec~no~ic relations betweenthe two countries haveenoanded
and it'is tierefore necessaryalso to go beyond the narrow limits of tride and
navigation and take into consideration also the other relations of an economic
nature betweenthe two countries, relations which havebecomemorecomplicated,
such as inthe currency and monetary fields and in that of the transier of goods
and persons; also because the transfer of capital in particular has increased,
especially since the First World War. 1 therefore do not wish to mean that the72 ELETTRONICA SICULA
new treaty mus1be limited to the 1871type. But ihere is the world of diference
betweenthe principle of extending the treaiment to other economic relations and
thus of making a wider-ranging treaty and ending up with the treaty we are
examining because (as can easily be seen) the noms coniained in this treaty
establish, no1 a condition of equality, which is nevertheless repeatedly stated in
the ministerial reoort and in that of the Rt. Hon. Camoilli. but a condition of
intrinsic as well as juridical superiority, that is, substantive as wellas formal. of
the United States in fieldsmuch broader ihan that of trade. Therefore, precisely
because of the actual content of the treaty. which is so broad in scope and giv&
such extensive powers to the United States. it is clear that the treaty is part of
that set of instruments which make up the expansionist policy of the United
States. What do theseinstruments consist of? Wehave outlined them on a number
of occasions here, in the Chamber, when defending Our national interests, the
interests of Our Country, vis-à-visal1the international instruments that we have
had to deal with here.
At the time when the Constiiuent Assembly discussed the Bretton Woods
agreements (even thoueh we too aooroved ..em to some extent) we declared
te clcarly. genilcnie~. ihi; is nui lin intcrnIitionIilIigrïcmrnl in'u,hich a11the
couniric\ are prcjcnied on mi equlil footing. here we are delilini:wirh an inierna-
tional organization which regulates the currency exchange rates between the
various countries throueh un international fund that is clearlv dom,~~ted hv~ ~ ~ ~, the
Uniied Siaie\ kcau\e. WC said. both in the Intcrnation;il hlonetiiry l'und 2nd in
the International Bank for Rccon~truciionand Develiipmeni 31 ver cent of ihe
votes are held by the United States; if to these votes we add the-further 25 per
cent held by the British Empire. we have an absolute majority for the Anglo-
Saxon bloc and for the United States in particular.
We have oointed out this situation not onlv with reaard to these aereements
uhich rcpre;eni uhat I should dclinc as a pc;ni3ncnt ~nstrumenioi tir United
SII~ICp S<~lic)or ilominion, but also uith regard to poliiis~11~ ctcn more \crioui
and obvious instruments that should be temporary, but are actually permanent.
We made similar and more firmlv erou,ded staiements when we discussed the ~ ~
ERP ligreemcnis. rc\,c~lingthcir unfair n;iiurc ;in,! the ceonornie and poliiiclil
predomination of the Cnitcd Siliics. ihcir disiinitiic politic~ilnxiur: 13no longcr
denied by anyone, now that instead of wheat the idea is to send us arms. The
non-temoorarv nature of these aereements is also revealed bv the other comnle- . ~
mcniar)'agrc~menis.pIirticu13rly-nouih~t !ou have 2ppro<ed2n Ailantic Trcliry
which la)s doun the sppli~~~ion of the lend-le~isrlaw li~rthe arnianicnts of the
European countries.
These vermanent instruments and those of a temoorarv nature. as it were~ ....
esiablishid b) the ERP prior IO 1952(hut which uill hccomf pern~anfntprccisely
because they consolidate ihr situxiion of European dcpendcnc)) lav ihc founda-
lions of the economic and ~0lilical oredominance of the ~nited scates
By means of these instriments and other precise, if no1definitive,agreements
such as the Havana Charter?, the basis of the Amencan empire is ensured. Even
the so-calledprinciples of freedom, of trade, of the transfer of goods and persons.
stated in the aforesaid Charter, today represent instruments of the absolute
supremacy of the United States economy throughout the world, which is some-
thing serious for our Country both in the field of trade and in that of capital
investment. In the strictly commercial field it mus1be recalled that Our imports
from the dollar area accounted for 19.47 percent of total imports in 1938, 50.17
per cent in 1947and 45.19 percent in 1948, whileOurexports to the same area
are far less important, amounting to 9.78 percent of total exports in 1938,5.93
per cent in 1947,9.49 per cent in 1948.These few indicators could well seem DOCU.WENT ANNEXED TO THE COUNTER-MEMORIAL 73
insulïïcient. However. with reeard to the economic oenetration of the United
Siaie, in gçneral I think Iittleïi>ciieeds tu he s~idbe)ond contirming the opinion
held hy ihc m2n in ihc strïci uho hli\ sccn iiiir Coiinir) ini~dcd h? Co:a Cola
and the domination of American lilms without any defence by Ourindustry, and
the widespread presence of de luxe automobiles which did no1exist previously.
It is against this precise background that ihis Treaty must be viewed, a new,
permanent instrument in the conventional form, if you like, of a treaty of trade,
navigation and fricndship; in other words it is formally diiïerent froiii what
clearly emerges at first sight from the bilateral agreements established in the ERP
legislation, according to which we wholly accept an interna1 law of the United
States,namcly, the law of 3 April 1948.
Although this treaty appears to be a conventional instrument il is difierent in
ils substance; in ils spirit il represents a new, albeit formally conventional,
instrument, an instrument which, iogether with the others, serves the purpose of
guaranteeing the predominance of the United States over our Country. And 1
am convinced that also the Rt. H«n. Campilli, even though he uses inhis report
those words which would be suitable jus1 for his voters - who will perhaps
believe them, as they helieved them on 18 April - referring to the equality of
righis betwecn the IWO parties, to friendship, etc., 1 believe, 1 repeat, tliat also
the RI. Hon Campilli basically agrees with me (because I consider him an
intelligent person) that here we are establishing an instrument that does not
euarantee eaual ri-hts but which sanctions a substantive ineaua.itv .etween the
IWO counirirs and ihus guarÿntïc\ a pri\ilcged poiition for the IJniicJ Siates.
Moreo\er. u henceconies thi<fr:iniis Jesire oithe United S121esfur the trecdom
of trade, of settlement, of the movement of persons, goods and capital, precisely
in a c~ ~ ~v which is hisioricallv known for ils oronounced orotectionism. for
ils sn\age c;iioms t.irills. Thrh;itory of the iradépolie) oi the United Siaics 1,
rell knoun therï isno nced tu dea~.ribeilai length ilISihe hisior!.or proiection-
ism iiself.
SuffiseII io nieniion ihc custonls tari1Ts.iuch as ihose laid doun by the 1890
Kinjlcy custonis Iaw or the c\cn more serious Hliulcy Smooi I3u oi 1Y3uor the
trade policy of supporting the comr>anicsset up by the oil and steel trusis for the
ourooie ofoenetraiine thé~urooean markets. Üariicularlv that sanctioned bv the
i91k ~cbh'~omeranC1aw sboli;hing the anti-i;u,t legisl~ion in the caie of ihese
trading conipanies Furcign trade lias alua)i beensonsidercd in the United Siaie.
as a matter of national interest, a public, not a private concern. And how many
institutes have been set up to encourage exports, that is, to creale opportunities
for the penetration of world markets! Only now has this frantic desire for the
freedom of trade and navigation, for the free movement of persons and capital
come to light. But we also find that ihis freedom is in someone else'shouse, no1
at home. that is, that this freedom is rnerely the expression of the present interests
of the ruling class in the United States, that it represents the interests of the
United States economy which occupies a position of substantial and undeniable
predominance in the world; in other words, it servesthe purpose oiunderpinning
the power relations by means of which the weak, precisely by virtue of this
freedom, can no longer defend themselves; ilestablishes equality between the
dwarf and the giant. In this connection 1should like Io tell a story which may
present the issue in a somewhat lighter vein, even though 1am no1a good story-
teller. II is about a man who made canned lark's meat. When asked how one
could possibly make canned lark's meat, he would answer that it was really not
just lark's meat bu1also horsemeai - half and half, he would say, exactly half
horsemeat and half lark's meat. This is the kind of equality that is being estab-
lished. This is the freedom that the United States is demanding today - the74 ELETTRONICA SICULA
freedom of the stronger party. What 1 am saying also refers IO other cases,
honourable colleagues, particularly the Rt. Hon. Campilli and Togni who are
concerned also with the Customs Union with France. Today, in this age of
monopolies, the conventional instruments used to prevent the penetration of
foreign soods change in meaninr. Customs tariffs become lessimoortant because
thevarereolaced b;aereementsbetween monooolies. between er-~.s - betwee~~ ~
thegroups: for instance, of the French steel ind;stry and the ltalian steel industry,
beiween the CornirédesFornes and Cornpsider- that is, agreements fixing the
auantities and the sales markets and limiiine trade with a e-ëater benefit foÏ the
monupolics ihan uiih i<in\,entionalcurtiimr formulae. Hccaujc.whcn ihe cuctoms
iariffs werc in force. part of ihc rc\cnue at Iea\i wcnt IO thc Siaic. which could
then distribute it to the vanous categones of citizens according to the expenditure
made bv the State itself.
Ti>daymiinopi>lisiicgroupr makc agreements amongst thcniscl~csand rctain
also ihiii part which should go to the Stdte 3s customs duiiec. Bui ihis doec noi
change th; substance, the faci that international economic relations are regulated
according to the power relations existing between the monopolistic groups.
How can we defend ourselves in such a situation? By reasserting freedom,
equality, that is, by spoutingwords that wecould not believeif wewere intelligent
persons? By trying to deceive us, to deceive the ltalian people, whose interests
we should be defending, or instead by examining the truth carefully and trying
10 find suitable instruments to prevent this substantial inequaliiy from weighing
too heavily on Our Country's economy?
But there is still one further aspect of a general nature. When a treaty is
presented like this one, that is, so broad in scope as to place foreign persons and
comoanies on an eaual footine wiih national ones. when ii becomes a treatv of
settlément.of estabiishment, as a result of which - as we shall see more fully
when the articles are examined - foreign citizens and companies can establish
themselvesin OurCountry,carry on commercial, cultural, political and informa-
tive activities, that is,drry on al1 possible kinds of activities, this treaty then
becomes a political treaty.
This is a new principle, which is not Sound in the other treaties. That is. it is
not true when the report says that this treaty does not add anything new; there
is one imoortant and verv new fact that is not contained even in the treaties
Germany éstablished withRomania and Czechoslovakia (because those treatie;
contained a most-favoured-nation clause), namely, equality was established with
foreieners not with nationals.
1io no1 wish IO argue in abstracl icrms . .. ior instance. from an ab\traci
point of vieu be an acceptable principle to esiahli\h \omeihing ncu. uhich uould
facilitateeconomic relations between the various countries. However. honourable
colleagues, when we accept such weighty and serious clauses, I repeat, we trans-
form a treaty of navigation and trade into a political treaty. In the first place, it
is not true that there are no specificallypolitical clauses, in so far as the clauses
allowine-cultural. relieious and oolitical activities are an exoression of iust this.
1-rom d gcneral pcilniol ricu theic claurc~ma) noi ci'en raisc ans problcms II
Jspcndr <inihe p<is,ihlcexicn,ion giscn to >uch;iciisities The seci of the Mor-
mons might spread, and 1think that some of my colleagues present here would
even not mind that; that horrible publication known as the ReaderSDigesI could
spread. These are details. It is the principle that counts: that is, when these rights
are summed up, we necessanly come to deal with a political content of a constitu-
tional nature, 1 should Say, which therefore calls for an examination of what
constitutes the jundical and political system of the two countnes party to the
treaty, as well as their current policy; only in this way can the effectiveexistence DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 77
considered permanent) - that is, the set of rules which can partly ofiset this
inequality of a substantial, economic and juridical nature.
We have no confidence. The inequality hetween the two parties to the treaty
is clear and obvious in al1the articles which, in viewof the late hour, 1certainly
do not intend to read, although perhaps some of my colleagues, who have had
full. acritical confidence in the Government, have probably not even read them,
as they know that the duty of the majority is to vote in favour of the Government.
Therefore, perhaps. also a reading of the individual articles would no1 be a had
idea for some of these collea-ues: however. 1do no1 wish to afflict the few that
;ire pre$cnt. lilso IXL.JUSl~belic\e ihxt thrre is nd point in for~.ingpcoplr,io fer1
respansibilii! for their action$ uhcn ihc) do niti alrcdd) fcrl it ihcniscl\es
Suttiic itio reier ii)tlrticlc 1\ahich coniains ihc most iniriort.int nrovi>ions
the possibility of carrying on cominercial, industrial, processiig, finanCial,educa-
tional, philanthropic and professional activities, except the exercise of the legal
profession; the possibility of purchasing, owning and constructing (1should like
to see how manv Italians will eo and build in the United States). to use agents
and cniplo)cci o?ilicir oun ch;icc. uithoui rcglird for ihrir n~iion31ity(ihc). uill
probahl) hr :irmics of spici). 1rcpzdi, uhsi ha\c WC Io usc agdinsi ihis Arii:lc
1.u,hichcontinues inio Article II,c.stahlishingthc simc privilegcs,the urne nghis.
for somp.inics: iconiinurs into Ariiclc 111.whichemphasiies ihc scction refcrrinp
IO the carrying on of indurtrial, c<immcrci;il.philaiithropic and rcligiousaciititics"
\\'ha1haie WC Rot IOoliset Articlc IV. whichcsiahlishcs the riossihilityof carrline
. -
oui prospecting with a view to exploiting mineral resource;?
Lastly. Articles V and VI lay down the norms governing the transfer of
property; Article VI1presents an odd difierence of treatrnent because the citizens
and juridical persons and associations of each other party to the treaty will have
the right to purchase, possess and dispose of real estate or other real rights in
the territory of the other party to the treaty on the following conditions:
(LI)in the case of citizens, etc., of the ltalian Republic, the right to purchase
will depend on the laws and regulations which are or come into force in the
future in the United States of America;
. . in the case of citizens and iuridical versons of the United States of America.
ihc right Io purchase. etc. will bs subjcci Io cundiiioni no lers h\ourable ihan
ihi>iegranicd or 10 he granted in future Io ihc ~.iiifcnsand ~uridiç~1prion, <if
ihc Iiali;in Reriuhlic.etc This is.ihcrefaorc.a din'erenccaljo ofa iuridical n3iurc
established, sinctioned, by ~rt,cle VII, between our citizens and those of the
United States, that is, a condition of inferiority of our citizens vis-à-visthose of
the United States.
And the series of articles continues in the same tone. As 1have already said,
no treaty has ever establishcd such a high degree of favour for foreigncrs. Not
even the Treaty between German)' and Romania and Slovakia before the Second
World War. Our Treaty of Na~igdtion and Trade of 1871 was much more
prudent; its provisions did not extend to settlement and it provided a better
guarantee of the interests of our Country.
At any rate, what is the only substantial benefit that we could have obtained
from the substantive point of view, assuming that is that the United States legal
system did not have the notorious Alien Act? The only bcnefit w,ouldhave been
the possibility of migration to the United States for ltalians who, even if they
unfortundtely could not go there and set up companies in competition with the
Srondurd Oil Company, or to carry out oil prospecting, or perhaps even to carry
oncultural oreduciitional activities(except in thecase ofa religiouscongregation),
could al least have gone to the United States to work.78 ELETTRONICA SICULA
The only henefit was the possibility of our millions of unemployed going to
the United States and finding there an opportunity to work, to live, to make a
future for themselves. And yet this possibility has heen prevented; our only
possible benefit is unavailable.
And in these very days al1 my honourahle colleagues - indeed this very
morning - will have received from the Under-Secretary of State for Foreign
Aiïairs, the Rt. Hon. Moro, a letter recalling the regulations governing migration
to the United States of America. This letter states that migration to the United
States is riaorouslv.e.verned hv the restrictive law of 1924which allows onlv a
Iiniiied niimhcr uCIIaliJnl tu jettlc in ih:ii Fcdsr~ii~lnr.;ich )eJr.
Thc places noi iilled in the so-sdlli.d prefercnii.il cJteporic>. u.hich are Iimiied
io a feti hundrecl Dsr ridr. riDrciciil the i~i~l.itedpri.lircnii.ilr.u<>ia.etc This 15
followed by the liit ofdocuments required for thi; migration.
What becomes of this reciprocity of settlement when we are deprived of the
only possibility of settlement open to our Country? Clearly this clause favours
only the interests of the United States, so that the "Metro Goldwyn Mayer" can
carry on ils activity in Italy, purchase and own, using the profits deriving from
the fact that Italian citizens are compelled to seenotonly the good films - which
would be nseful- but also the horrible films of the United States,and of political
propagada related to the so-called cold war, like "lron Curtain", etc. 1have given
the example of a film Company, which is ohviously likely to cause less trouble
than others, becauseeven if it huys a building or two, these are unlikely to be
taken out of our territorv.
Bui wherc is the i.qu.11foùting. the equiliiy, mcntioned in the niiiiisterial report
and in thnt ol'ihe Kt Ilon. Campilli'! Dai., the Ri. Hiin. Cdnipilli rrsll) belie\e
inII'!I ha\e f.iiili in hi, intellieenci. :inil belii.\e ih~i he docr n.ithe incuu;ilii\
is quite clear, obvious. This &aly cannot be considered a treaty of eGaliti,
hetween equally sovereign countries, that is hetween countries defending their
reciprocal rights with equal vigour; 1would cal1it an "open door" treaty of the
kind that more oowerful. imnerialistic. countries - such as Great Britain and
the Un1ii.J St.iies - Are. or lcrc. ~ccu~lùnled 10 i..ililhlljhlng (:!nll lUS hope
the! iiiIIhe iinahle 16,~.oniinuc IO Ji) so) nith ( hinci and Turhe) ai ihr. ilme of
their greatest decline, that is, with countries they deemed to lie in their own
sphere of colonial or semi-colonial influence.
We cannot accept such a treaty; and we have al1 the more reason for not
accepting itin so far as the present Government is doing practically nothing to
make up for this state of suhstantial inequality. We cannot have confidence in a
Government which supinely, without discussing it, accepts al1 the initiatives
proposed hy the stronger country, the United States; wecannot have confidence
in a Government that does not acceot discussion.which out of servilitv is alwavs
unii,illin10 impo5c conirols and restriiii<>ni on ihs in\asion hy 4nisrii:in cip11;il.
io inip,ihi. \uh,iantialconirols and rcsirictions on ihe iniriision oi IJnite,l St:ite.
companies and citizens in our Country.
In other words, we have no confidence that the Christian Democrat Govern-
ment can and will defend the interests of our Country in the same way as the
United States defends its interests. But precisely becausethis instrument per se
reDresentsanother link in the chain that is to bind the American world toaether
;in'd of uhich no countr) i\:illoucd iciihiikc oil. ihai 1,. prr.ciscly hi.c,iu<it 15
dnother Iink in [hi. chain rcprcwnied by the Brction Wood><iccords,the Hajïnd
Charter" :ind ihi. EKP ilgrecmcnts. and <>1 ihc Atlantic Charicr in the p<~liii;il
field, precisely hecause this instrument sets out to sanction the inequaiity, the
disparity, between the two parties thereto and does not defend the interests of
our Country, precisely because the Government running our Country is not DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 79
capable of defending the national interests and is unwilling to do so, for this
reason we cannot recommend the ratification of this treaty and invite al1 our
colleagues to refuse to ratify(Applausefiom the ExrremeLefl).
Chairman: The rest of the discussion is postponed until tomorrow. ELETTRONICA SICULA
Document 6
[Italian fexr nor reproduced]
CONTINUATION OF THE DISCUSSIONOF THE DRAFT BILL: RATIFICATIONAND IMPLE-
MENTATIONOF THE TREATY OF FRIENDSHI TP,ADE AND NAVIGATIO OF,THE PROTO-
COL OF SIGNATUR EF,THE ADDITIONAL PROTOCOL AND THE EXCHANGE OF NOTES.
AGREED IN ROME, BETWEEN ITALY AND THE UNITED STATES OF AMERICA ,N 2
~BRUARY 1948(246).
Speaker: The item on the agenda is the discussion ofthe draft bill: Ratification
and implementation of the Treaty of friendship, trade and navigation, of the
Protocol of signature, of the additional Protocol and of the exchange of Notes
agreed in Rome, between ltaly and the United States of America, on 2 Fehruary
.-411
The next speaker is the Rt. Hon. Montini, who has the floor.
Monrini: The Treaty of Friendship, Trade and Navigation between ltaly and
the United States of America, and the relativeprotocols, have already been amply
discussed, firsthy the Committee for Foreign Relations and subsequently by the
Committee for Treaties.
An objective examination of the Treaty from a negative point of view has
already heen made quite thoroughly by the Rt. Hon. Pesenti. Here, however, it
is not a matter of discussing singlepoints, as if the intention were to introduce
possible modifications, but to decide "for" or "against" ratification.
From the historical oint of view we are more or less in the same oosition as
Ouric>llcagucsin 1871.whsn the ~irrtr.iiitication oi3 Tre.11)bctsccn our Cgiuniry
and thc United Siatcs of Amrnix mas hcinr!discussc~ Precisclin th31ncniiJa
previous treaty agreed in 1838 was aboutto expire and ~arli'amentwas being
asked to ratify the new treaty, which was ultimately signedby the Minister
Visconti Venosta.
At that time the Minister had to defend himself hecause the opposition, which
was lively also in those davs, ~ointed out that the treatv did not safeeuard a
perfect rëciprocity of rights;this wasa somewhat similar position to that if today
in that the fundamental objection made by the opposition is indeed the ~ossibilitv
of a lack of reciorocitv betweenour ~ountrv and the United States.
It 1s interesting -se frcm the documints of the lime how the proposing
Minister had to defend himselfagainst the reservation made by the United States
of the right to coastal shipping, the right of rivernavigation and of the conven-
tional tariff.
This is what the Minister of the time said:
"This is al1that we can ask of the United States in the meanwhile in so
far as the parity that we are demanding is perfectly comparable to that of
al1the other States that are negotiating for the United States." DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 81
"Therefore", declared the proposing Minister at the lime,
'ihc fundamcniîl o\crall pniiiion i 3, follows. çither noi I<Ipcrforni an aci
oipeîccrul negotiation u,ith ihic nation or clic to mercly wiihdrau rrom ihe
Id38 Trcîtv and remain in thc ~osition oïnoi havine any relîlions vith ihc
-.
United Staies themselves". .
Also today the discussion could be summed up in these lems: either to ratiîy
or not to ratify. By ratifying - and 1 shall momentarily accept your overall
argument - we do not ohtain everything we want, we obtain less than what
might be considered desirable. But, if this is your argument, il is no less true that
ratification would in any case hring considerable benefits.
The opposition's objections however refer also to another point. namely, that
it is not a protocol restricted to the regulation of trade and navigation relations
and which remains within the nkirrow confines of the technical regulation of
economic relations, but consists of a Treaty which is extended to cover a much
larger spherc involving also the establishment of positions of friendship, thus
entailing relations which are more than technical in scope and in which the
opposition detects a political aspect.
It is very strange that such objections should come from this quarter. Since
1871 the general political situation has changed considerably and a diRerent
aonroach Io internal relations and relations between Stateshas develo~edhistori-
caiIy. What in those days was merely a simple technical relation based on the
principles of a liberal State mus1now be revisedbecause the conception of State
has chan~ed comoletelv: and since the State bas constitutionall~ex~anded ils
internal fÜnctions:so Ge now find ourselves in a dilieren1position alio \,is-à-vis
the conception of relations between States. Today the 1871Treaty can be said Io
regulate too little; of the present one we certainly cannot say that it regulates
too much! Much oroeress has heen made: sufficeit to consider the laree numher
of relations which regulate the life of .$rates and the need for them 10 cultivale
and accept relations of solidarity, in order to observe, in the course of history,
that justas the means of transport, cultural relations, etc., have expanded, so it
is necessary to predict and regulate increasingly broader areas of contact hetween
States. We must decide whether il is necessary to stop short at the part strictly
envisaged in the Treaty; from the historical point of view we consider that this
Treaty is not only nota bad thing, but that it is a good thing, alihough (perhaps)
not as good as we might have hoped for.
At the Committce level, the opposition has drawn Our attention to :inother
point: the technical point of view. During the discussion before the Cornmittee
a number of objections were raised concerning the issue of establishment, and it
was pointed out thai, while the Treaty states that "Equal conditions are recog-
nized for the free exercise of the professions, except the legal profession", in
actual fact United States legislation and practice would imply a deficiency of
application because ihe legislation of the individual states making up the Federa-
tion would count as restrictiveclauses to the hroader scope granied by the Treaty.
We reply in the first instance that, in the states of the Union, wherever a
restictivelaw is in force. the aoolicable law ismore likelvto be not the restrictive
one but that of the ~ederationand in any case what should or is at least likely
to occur is that the local laws, which could be less restrictive today. willgradually
decline, possibly with the help of the Treaty itself.
If the hasesprovided by the Treaty ultimately increase the range ~Tpossibilities,
it mus1be accepted that the Treaty itself can lead to possibilities which hitherto
were excluded. Also for this reason it is obvious that, faced with the question of
whether to ratify or no1 to ratify, il is better to ratify. Even if we were to thinkihai in ihe internal praciice ul'ihr United Stïier a curreni Iimir Io application
c~isicd,u,ecannoi hclp h.lir\ing ihai the Treïi) is likclyIOincrc~sethe possibili-
iics rither th~n reduce ihcm. l'herefore either ue rem:iin incri and do no1 ratify.
or hy ratifying, we try to open this door wider than it has heen opened so far. . .
The "most-favoured-nation" clause expressly included inthe Treaty and which
refers to hoth trade relations and al1other kinds of relations, is a clause which
existed in the preceding 1871Treaty; therefore the present Treaty neither inno-
vates nor improves the question with regard to this point. This is the observation
made hy the opposition. We reply that if you do not ratify the present Treaty
this favourahle clause is lost: it disaooears.
Thcrefore. if ue take an absolute n;gativr visu. u,ehall nul hate ihe adraniage
evcn uf ihr pusiiiiç ïspeci, ihïi i.;.ofihis clause. uhich 1srecogniled hg e\eryonç
as favourahle.
From the substantive ooint of view. the observation made bv the oooosition
is the follouing. ihc wrb~i reiiproiity gloriiicd in ihe Treat) does nhi in faci
exisi; inso Faras ihe trcÿt) with the Uniied Siaies remaini a s)mhol - to use
the u,ords ofour collcaeuc Piscnti addressed 10 ihe Forcicn ArTsirsConiniitice -
it represents a symborof reciprocity and equality, buithe substance remains
unaltered, namely, a state of inequality hetween the Iwo countries. And this
inequality cannot be corrected by the Treaty. My answer is that before speaking
of inequality in juridical terms it is a good idea to observe the hases of the
discussion. And in this connection we have not heard and will not hear any
serious objections concerning the reciprocity of rights hetween the two States
party to the treaty. Perfect reciprocity means that ltaly is on an equal footing
with the States that have dealings with the United States, and that privileges are
not used to breach the equality between the application of the internal ltalian
legislation and the application of the internal United States law, which forms the
basis of the equality of rights.
Reciprocity, in so far as the United States treat us as they treat other nations,
with the advantage that in some cases Our position is more favourable. Parity,
in so far as the respective citizensof the two countries are not subject to a priori
limitations. Therefore. in the r~~~~~ of law. no ine.ualit, exists.
In the practical sphere the question of su'bstantiveinequality is taken Io mean
that the Treaty is blamed for the faci that the greatness of the United States, ils
financial oower. the oosition of ils caoital. couid become a means of suoremacv
\is-2-\is our we:tknessand shoric<imings;in oiher uords. thir siluaiion tiould be
a T;iuli.in lh3tany nation negotiaiing with the Uniicd States uould hc negutiating
uith ï sironger pari). And the Treatv is hlamed for noi curreciinc! ihir defcct
But how cai a freaïv correct such a Siaie of affairs? If we neeotised with the
Republic of San ann n asw edo. would this veryfact entail a Grfect substantive
reciprocity between the Republic of San Marino and Italy? The observation
woÜld seem so obvious that its logical meaning cannot be overlooked! So that
of course if we negotiate with the United States we shall not demand equality of
resources, aid and activities but a line of respect of rights and dignity. And we
could well fear - if that is the right word - that the United States capital
eniering ltaly affects our economic and financial positions.
But also on this point we must be careful not to reach negative conclusions
because, either we actually do fear that any entry from abroad of foreign capital
into Our Country is dangerous, and therefore what we unconsciously wish to
maintain is a state of autarky; and we are still suffering (rom the terrible
consequences of him who gave us autarky! Or else we view the matter with a
greater sense of realism and say that the entry of foreign economic resources in10
Our Country mus1he discussed verycarefully and the decision ultimately taken DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 83
as to where to situate our independence and our dignity. In other words, if we
fear that the action of foreign capital and foreign economic resources affects our
independence and our dignity, we should he placing hoth very low down on the
scale for our Country. We know, however, that it is not by using inaterial
resources that independence and dignity can be affected. And were it leb ri'imate
to broach another matter in addition to that of treaties we should consider the
fact that the aid we receive from the United States is not received hy treaty, not
for the above technical considerations or through a specific foreign policy, but
we receive them through an act of international solidarity, which kas no effect
on our dignity or independence. No aid, no good, from whichever part it is
received will affect the sense of iniier freedom, the sense of dignity, as a result of
which we are people who beg their bread in the morning without considering
that at the end of a day's work we have produced as much as is required to give
it hack, and to have retained our dignity and independence.
This is basically the history of the last three years of our lives. Everything we
have receivedfrom the United States-and this is a matter which is not clo . . .
matter which obliges us to judge relations with other States - can be :issessed
as heing worth millions and millions of dollars. All the reconstruction work
(reconstruction of bridges, roads, railways, etc.) has heen done by us, even ifthe
mate~ ~ ~ ~~ ~ ~ ~ mostlv ca,e in ~ ~ ~ ~ ~ ~ external aid. The aid we have
received in this connection perhaps exceeds that granted toother countries, but
if this aid is materially accounted for it can be seen that the capital now invested
in our Country can be multiplied about seven-fold.
This means that one can be independent, not tied to any form of aid that
entails loss of dignity or independence. 1 rememher when in northern ltaly we
used to travel on "Belgian" railways and trams; 1never felt that my dignity or
freedom was beine diminished hv the fact of ourchasine a ticket with "Beleian
Tr.inia;i) Ci,rnp&&" \i.rittcn on it Tho\e r~ilu.d"s;m<lïr:im>have continu4 to
tunction iip ILIthe prcrerit tinicc\cn aiicr the <1r1gi11~3.1 ipit31h.id hr.r.iipdid h:ick
and today-no one can say that it has affected our indekndence and frëedom.
The Treaty has heen criticized hecause its provisions will have very little eiïect
on migration. It is obvious that we are more likely to receive capital from the
United States than the chance to place emigrants;and yet wewere veryinterested
in sending Italian labour to the Llnited States. Also on this point shall we hear
the opposition complain and demand that the Treaty modify this state of affairs
concerning us? But also on this point we must point out that the Treüty lays
firm juridical foundations; as for the actual facts we should perhaps negotiate
specialtreatment for Italy vis-à-visother countries and not conditions of equality.
If this becomes possible in future, the Treaty will no1prevent us from doing so;
today in any case we have conditions of fairness.
1helieve.therefore. that the oosition from which the Treatv is asked to correct
f.inilümcnt.il dirlcreiiccr isuti,piïii siid unconvinïing.
tor thcsc rcdsons ii c:in hr.conclucicdth;,t ihc i,prlori oh,r.ciioiis r;iiseilhy the
onnosltton unt~stificd. 1do not know i$hethcr the or>po.itii>n u'illr.iisc thr
cikc ~hlection, t; mer) trcdty broughi bci'orethe ~ham'&r Prubahl? the logic
of "our <ipposition iiillle.id !iiu IO dopi ;i hostilc attitude 10 e\cr) trcJiy the
Govcrnment hringr hciore tlic<'h;imbcrl'orr~tiîic.ition; h,>u'c.\cr.I mdiritJin ih.11
if this isthe generil a priori condition, it has no particular significancein the case
in point, unless too close a connection hetween a judgment of general relations
between Westand East has an eiïectalso on this discussion,which would continue,
outside its forum, the discussion carried on by many speakers in the last fewdays
before this Chamber. The opposition will always he the opposition; this is in the
nature of things; however, I think that when, in the near future, we hiing theTreaty with Russia here, either the opposition will have to change its present
compulsory behaviour or else it will have to admit there is no difference hetween
this treaty and that one. If there is any diference al al1it consists in the fact that
in that Treaty (the one with Russia), one goes even further, opening up lines of
solidarity which do no1 keep to the strict juridical concept of the international
treaties of the past.
In view of the aforegoing, 1 therefore consider that neither for historical
reasons, nor for reasons of treaty technicalities, nor for substantive reasons,
should a negative opinion be cast against ratification.
As il is not necessary to discuss the individual clauses, but only to decide
ktween "yes" and "no", the position of the "nos" seemsto be quite unjustified,
while we should like to express Our approval of ratification of the Treaty (Ap-
plause).
Speaker: There being no further speakers on the agenda and no one elsehaving
asked the floor, 1herehy declare the general discussion closed.
The honourahle Rappor~~ur for the minority now has the floor.
G~iiii,ppe,'rrii s<,n<,irh,,Iiirr..i>i~~,b'c2rri. apporteur for thc riiinoriiy : Ii15
truc rhxi ihcrc u;is a discussion btforï ihc Foreign ALirs Commiiicc and ihc
Treaiie\ Conimitics, but it 1,Asi) truc ih:ii ihcrc \rasliceriain icndcnc\. D.iriisu-
larly on the part of our colleagues of the majority, to gloss over a hetailed
examination in Parliament. If a colleague of the opposition had not taken the
floor concerning the Treaty yesterday we should prohably no1 have had any
discussion exceDtfor the reDort of the maioritv and that of the minoritv.
1wonder wh) this should be so? ~ome'Folléa~ues have said: we havé already
performed an important political act which hasically incorporates in ils broader
framework what we are called upon to perform today. Wehave already made a
decision concerning the Atlantic Treaty, and today the Treaty of Friendship and
Trade with the United States represents something of lesser importance, in a
certain sense, something complementary. But what has the Atlantic Treaty to do
with this? In the pas1 we have had other political treaties, and military accords:
the Triple Alliance, for instance; but when il came to discussing the treaties of
trade with countries such as Germany and Austria, Parliament discussed them
in detail. The States of the Triple Alliancealso had a volitical and militarv accord.
hur XIIm) cdllr.~guesknou hou long ihc dijcJs.;iins wsre in the ~rr:nch and
British Parliimcni\cunccrning the ireatiel esiabli,hing the tradc rslaiions hci!rccn
Grelii Br11311 31nJ France, or hciueen I:rnnce dnd R.15ri.1 Iii. ihcrr.fore dlllicult
to explain and understand why this Treaty is not viewed as a pact in ils own
nght, but is viewed as something important, undoubtedly very important, but
which it is not considered useful to discuss in detail because the discussion is
already included inthe parliamentary debates conducted for the ERP Convention,
the bilateral Pact and, lastly, on the Atlantic Treaty.
Or else, another hypothesis must k advanced which unfortunately seems to
be grounded on fact, and in a certain sense the colleagues of the majority who
support it are justified: namely, this is actually a special treaty and not something
independent, completely independent, of the political agreements we have negoti-
ated or are about to neeot-ate with the United States. of the soecial~r~~n~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
agreements undertaken earlier. No, this Treaty is something complementary to
the ERP Convention, the bilateral Pact and the Atlantic Treatv.
These are the grounds of our objections. Our colleague ~ontini hasjust spoken
of an a priori position assumed by us. 1 should like to be very clear in this
connection. Our position vis-à-vis trade treaties signed with the United States,
Great Britain or Russia, with any other State, can on the whole only he favour- DOCUMENTS ANNEXEU TO THE COUNTER-MEMORIAL 85
able. Our Country is a country devastated hy the war, by the defeat to which it
was led hy the fascist régime; a country which, particularly for its economic
recovery, needs to resume ils trade relaiions, its exchanges with al1 the other
countries.
In the reciprocal interest of Italy and these countries therefore we must, we
should neeo"iate trcaties. lndeed we are narticularlv favourable to this kind of
relations because they open up the give and take ledger in fullindependence.
Trade treaties should alwavs he favourable, like anv other commercial transac-
tion. to both parties to them. This is the fundamental principle. Each treaty,
therefore, should also contain a point in favour of Italy: the more points there
are. and the wider their scone. the hetter.
\\'c .Ire fd\,our~hicio ihz,c.ire3il3s a gencrciirulz. uiih 3ny counlr) the) ;ire
rice~ii.11~u~i1ih. i.r6)\1;ledthe) :ireïrreed in ihc I1;ilidnniiiiirnalinicresi. pro\iJcd
thit they strengihen or are eipected to strengthen our national economic inde-
pendence.
Our objections Io the Treaty we are called upon to discuss today are of a
different nature precisely because of the different nature of this Treaty.
If the Treaty with the United States were purely a trade treaty, negotiated in
the reciprocal interest of hoth parties, we could not raise any a priori objections
here. We might question several clauses, as may be discussed in everytreiity, but
we should be ohliged to declare our overall approval.
However, in actual fact weare opposed to the specifictex1of this treaty because
this treaty is linked to the ERP accords, to the hilateral Pact and to the Atlantic
Treatv. It is a complementarv treatv to the overall accords we have apreed to
with ~merica: this Cswhat givës thisireaty its spurious, peculiar, po~iticainature,
even though the Rapporteur for the majorit~ is~unwilling to admit it.
Our colieagues of the majority may perhaps say: All iight; in a certain sense
this treaty takes for granted the ERP accords. So what? The ERP accords mean
aid, alheit given to ltaly under certain conditions, and therefore we should he al1
the mor~ ~ ~ourahlc to this Treatv. This is oreciselv what we are ohiec3iiie -o.
1have here the industrial production indexes for a numher of countries. 1have
taken them from the monthlv statistics bulletin of the United Nations oublished
in Novemher 1948.With fewexceptions, these indexes are higher for the nations
that are not included in the ERP Plan than for those that are.
The index of industrial production for the EIS countries is as follows: Ilelgium
dropped from 96 in March to 85 in July, the UK from 108 in March to 99 in
August, France from II2 in March to 104 in September.
Campilli, Rapporteur for the majority: But are these the latest figures?
CiuseppeBerri, son of r11elare AngeloBerl;, Rapporteur for the minority: 1
shall listen to yours later. Therc hds been an increase in the Germari and Austrian
indexes hecause it is part of the ERP Plan directives to develop the <;ermdn
industry for the purposes of which we are al1aware. But if we take the indexes
of industrial production referring to the East European countries - aiid note
that 1have again taken the figuresfrom the United Nations statistics bulletin -
we see that the indexes increase appreciably over the same period, and these are
countries which do not receive the so-called benefits of the ERP convention.
For instance, Bulgaria rose froni 158 in March Io 192 inJuly, Crechoslovakia
from 99 in March to 102 in Seotemhcr. Poland from 150 in Mrirch to 157 in
August. As far as the Soviet union is concerned, industrial prorluction in the
third quarter of 1948is found to he 123percent that of the third quarter of 1947
and lj5 percent of the third quarter in~l946 These are the figures. Therefore, also, your claim that it does not matter
whether it is a trade agreement or not, or a pact complementary to the ERP
accords or not, since it is in any case an agreement which favours ltaly on the
whole can, in Our opinion, be challenged. And it can be challenged for other
reasons as well; because the characteristic of this treaty, which distinguishes it
from al1other treaties of the kind, is that it entails a certain degree of limitation
to Our trade with other countries. This is the point to which 1 wish to draw the
attention of the Chamber. It is truc that the United States have on several
occasions declared that, while they intend to control exports towards Eastern
Europe and the USSR, they have no intention of preventing them. In actual fact,
I believe that the Rapporteur for the majority will agree with me that in 1948
trade between the Marshall Plan countries and the East European countries and
the Soviet Union was very small indeed. If we take seven countries . . .
Cumpilli,Rapporteur for the majority: Take Great Britain.
GiuseppeBerri. son of rhe lare AngeloBerri, Rapporteur for the minority: I
shall take the trade between the Western European countnes, al1 the Western
European countries, including Great Britain, with seven countries of Eastern
Europe: Bulgana, Czechoslovakia, Finland, Hungary, Poland, Romania and
Yugoslavia. The figures for 1947 come to 44 per cent of those for 1938.Trade
between East Europe and the Western European countries came to less than 33
per cent, that is, less than one-third of the 1938figures.
And we shall immediately see what the reason for this is when we read some
very recent news items, dating back 10 two or three days ago, which will show
us the general character of trade agreements with the United States. Take for
instance the item in the Bullerinof ihe SrareDeparrmenr, that is, of the United
States Ministry of Foreign AiTairs,of 23March - that is, two daysago - which
informs us that the Government of Belgium - one of the countnesmost respect-
Cul,as it were, to US economic and political discipline, one of the Benelux
countries. which the Americans eenerallv consider as the countries most commit-
id i<,ihcir csononiic. poliiir~l and milii-iryplan- \icII. Hclgiumhl\ hem lineJ
605 ihousand dollars. th;il i360 million Iirc.h) the Siaie I>cp-irtmcni.for haring
purchased crude oil last year, not in East ~uropc, not in ~omania, for examplé,
not in Russia, but in Venezuela, that is to say. on American territory. On the
basis of the ERP economic accords, the ERP administration considered this
sufficient grounds for declaring a breach of the treaty and responded with eco-
nomic sanctions.
Another news item from the day before yesterday was published in the Paris
edition of the NP!$'York Herald Tribune: France and Poland have a trade
agreement according to which Poland supplies coal in return for French manufac-
tured nroducts. Therefore. in order to receive Polish coal. France exoorted
machi;ery. An American daily has reported the fact and announced that ~arshall
Plan officiais will carrv out an inauirv with a view 10 takine measures (for the
lime being economic sanctions) fo; what the United States considers a breach of
the Trealy also by France.
It is therefore evident that we are dealin- with extremelv . .uliar economic
trcaties. u.hish areo hound up in an econoniic. pulitical and military chain thai
ihev ncccir~ril~c<)nrtitutA Iimii~tionof nornial. inJcpenJcni economic dc\elop-
ment in the signatory countries (in this case Italy) in their free trade with the
other countries in the world. These economic limitations are obviously also
political limitations which lead Our Country to adopt a policy such that it
ultimately signs treaties of this kind, chaining itself to a given foreign policy DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 87
leading to certain consequences on which 1shall not dwell as 1 do not wish to
repeat the argument we had several days aga over the Atlantic Treaty.
Furthermore, also in the case of ltaly there have been limitations of this kind.
1wish to ask the honourahle undersecretary: is il true or not that the EIS has
banned the exchange of Romanian oil for ltalian machinery? The inforniation 1
have is as follows: the United States intervened to prevent this favourable
exchange for Italy. This is today's intervention; what will those of tomorrow be
like? We cannot tell. It is true that there exists a trade treatv with the Soviet
(:niun; but ii I\LIS\>truc thdt \icdo nui kiiiiu. hou. thir tri& tirai) hds hceii
rccciicJ in the Uniicd Siaie. iii,lmcri.x anJ ti?ivhai cxicni. . . . hqiiih 10 hc
im~lenicnir.d. iiitcvcr 1,.thcre iiilhc ,imiljr inicr\cntii,n, to thi,sc (wcr Ilclrium
and the Venezuelan ail or those over France when Polish coal was bartcrea for
French machinery. However this inay be 1can only cite these facts to show that
this Treaty has peculiar features and that it is these peculiar featurcs and no1an
u priori judgment which have led us to oppose il.
Moreover, it would seem that these peculiar features have heen noted in a
number of quarters with regard to economic agreements with the United States.
1 shall not cite a large number of facts here. Sufficeit ta recall the position of
Austria, of the Austrian National Bank, which kas protested against EIS financial
policy, which is causing inflation in that country. There is concern in Austria
because trade relations between Austria and the United States hased on the ERP
accords threaten to limit production in the large Austrian factories, that of Steyr,
for instance. This factory is unahle to work at full capacity and the fvlarshall
Plan envisages the importation of 20,000American trucks by Austria!
Even in Turkey - and Turkey is a country that, for a number of politico-
military, rather than economic, reasons has been greatly facilitated - the Turkish
National party, a centre-right party that in no way shares Our general position
nor Our ideas on interna1 policy, has raised objections against the economic
consequences of the ERP Plan, which stands in the way of part of the Turkish
exports and above al1worsens the economic situation in the rural areas. Concern
has been expressed also in the Beiieluxcountries.
You will say that these are the negative aspects. To our mind these negative
asoects are serious and wei~"tv.,..rhaos not sa much as reeards the oresent but
fo; the future, as has been the experieke in other countrie;
Futhermore, alsoeconomic aid is heginning to be adversely affectcdby inilitary
supplies.
You are al1aware of the discussion which took place two or three dxys aga
before the Foreign Atfairs Commission of the United States Senate between the
Chairman of the Foreign Atfairs Commission, Connally, and several senators
having considerable influence on IJS foreign policy,such as Vandeberg arid Taft,
who declared themselves in favour of reducing ERP aid ta Europe on the grounds
of the huge amount of military aid due under the lend-lease law; they said that
the United States cannot bear the cos1of this military aid involved in the lend-
lease law and also go on with the ERP economic aid.
Therefore, also the positive aspects - if there are any in the economic aid
provided by the United States in accordance with the ERP convention - will
without any doubt tend to diminish in the months to come and we will have to
hear the full force of the negative aspects, which are those that 1 have described
earlier and which stand in the way of thc autonomous and direct dcvelopment
in al1directions of the economic and commercial life of OurCountry.
After these eeneral remarks let ils have a auick look at the Treatv as it stands.
The most serious and weighty remark maie yesterday by OurcolfeaguePesenti
in his address, on which the Chamber should meditate, is that even the tradetreaties with Hitler's Germany with the Danubian countries simply contained the
most-favoured-nation clause; they did no1 go so far as to establish for the
Hitlerian nazis in the Balkans the same treatment as for the nationals of the
Danubian countries.This clause, which does existin this Treaty, istrulysomething
new, a new fact in the history of trade relations between countries, as well as
king a serious political fact which reveals the nature of this Treaty.
1shall not dwell at length upon this point. 1am sure that here, in a political
assembly, each person can draw al1the required consequences from the statement
of this fact.
The Rt. Hon. Montini, who has jus1 spoken, told us that we are in the same
situation as Our 1871colleagues. 1do no1 think there is any similarity with the
Amenca of 1871, which had just come out of the Civil War, which was still
inspired by the political principles ofthe great Abraham Lincoln and was a true
symbol of democrdcy and progress in the world, and the imperialist America of
today. There is no similarity between that America and between that ltaly which
had just come out of the war of unification, of liberation and in which there was
a coalition of progressive forces to which, after all, also the democratic extreme
left participated indirectly in some form or another, no similarity between those
parliamentary debates (Honourable Montini, you have ken to see the texts of
the documents of the pas1 and you must have noted how wide-ranging and
substantial the debate was at the lime) and the way weare discussing this Treaty,
no similarity above al1between the economic and political content of the 1871
Treaty and the content of this one. The 1871Treaty was one of the milestones
in the economic life of a Nation that, unified at last, was beginning ils life in
Europe and the world. Today's Treaty, as 1 have already said and do not wish
to repeat, is a completely diiierent matter.
There are two points in which we have, as it were, encapsulated Ouropposition
and through which we have criticized this Treaty:
In the first place. we have denied that the Treaty is fair and reciprocal and we
have denied this. Rt. Hon. Montini. not onlv kause of the difierence in the
economic potential of the two countries. ~hk is something that could happen
no1only with the United States but also with other countries. With England and
with the Soviet Union there is a substantial difference in economic power but it
cannot be reasonably claimed that this imbalance in economic power should be
allowed to interfere with the trade relations between the economically weaker
and the economically stronger country. This would be wrong. It is not on the
basis of this inequality that we have denied the fairness and reciprocity of the
Treatv. We refer to other factors which we have indicated concretelv: We have
said, ior instance, that reciprocity is embodied in the fundamental ariicle, Article
1,which states that the citizens of each of the two High Parties to the Contract
shall have the neht to enter the territorv of the otheriartv. to reside there and
to travel freely Ger il. This is not the case here. It is not true, nor can it ever be
true. It is not true because there exists United States lerislation, the immigration
laws, which exert a severe control over entry to the United States foritalian
citizens for whom parity does no1 exist. ltalian citizens can enter the United
States only by passing through the fine mesh sieve of this lawand Article 1will
remain inapplicable. Then we shall see the political implications of this sieve
today. On the other hand, the citizens of the United States can come and go as
they please in ltalian territory because we have not got the same laws as the
United States.
There is no need for me here to repeat the facts 1 have already mentioned in
the report. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 89
Even a numher of ltalian deputies and senators, who wished to go to the
United States to visit their families, their wives and children, not for political
reasons, have had their application for a visa refused. This is what happened to
Ourcolleague Michele Sala, a deputy from Palenno. Yesterday or the day before
the same hao~ened Io Einaudi. Girotti and others. Thev were sunoosed to eo 10
a peace conpiess in the ~nitedktates. In the case of ou;colleagué Sala therewas
not even any political reason at al1to justify this. We consider that the political
reason is completely unjustified in the-case-of those who were refused an entry
visa to the United States for the purpose of attending the peace congress. It seems
appalling that a visa should be withheld from personalities of the world of art
and culture simply hecause they arenot in 100percent agreement with the policy
currently heing followed hy the United States of America. However, thï case of
Ourcolleague Sala is even more serious.
Article 1seemed Io open up wide vistas also for emigration. In actual fact, it
has no eiiect on the situation. This is a feature charactenzing the Treaty as a
whole. Many of these articles, particularly those apparently more favourable Io
Ourcountry, in actual fact do not change the current situation in any w;iy al all.
1shall deal with emigration separately because 1think that the considerations Io
be made are extremelv i.oort.nt. Let us take oara~. -. 2 of Article 1 which
,taies that the citii.en\ of the tuo counirie$ and thcrcforc Italian sitiicns in
the Cniicd Statei - 3rc gu.ir~ntccd the right ta frcel) excrcise their proicsri~inal
acti\iiv. excc~t iiir the Ieeîl ~rofeisii)n. I hs\c iilrc;td, said in the rciiori th31[hi,
is not ;rue. ~he report or thémajority states that, under United tat t eonstitu-
tional law, international treaties have, as it were, the force of federal laws and
therefore their provisions overnde the legislalion of the various states of the
Union. This is no1 so: anvone familiar with US leeislation knows that in the
of ~mcricani~ÿlion kl.Ic)reigncrs,whkh hï.; Bccn knoiin nian). !car> hy
thr IJniied States (11Amcrica. therc ii only une Iau uhirh counts, namel). thai
mierants mus1 he assimilated as auicklv a. oos.ihle and therefore al1inc~rants
must hahc cqual riatus \ihaievci. their country of origin. This is uhiit the Ixu
(ays It uould he impossible in ircat migrdntr of Italian origin ditlercntl) from
Pullsh, Gcrman or Frcnsh niiarants. Thcrefore th#.;gcncr~lpru\ision 1suneniorce-
able. And it is unenforceabk -- and here 1 shan no1 go into detail -- for a
hundred other reasons as well.Ainong other things, the professional associations
(doctors, engineers, various technical professionals) are so well organized that
they can practically block accessto the professions, which they do in actual fact,
bv,~~,v f~r~"eners who do no1 oar~~~oecial state examinations.
Hui thcsc factors mii) Jppçar IO bc onl) oi wct~ndar) importance.
Thc tundamcni,l Factor which explode\ ihc mbth oi thc sritçri<in<iîsqualii)
is the fact that there exists in America a law, the 4lien Act, which has no
equivalent in any other country in the world. The origin of this law is quite
peculiar: it dates hack to the time when the United States wanted to break the
fetters of colonial oppression, free itself from British dominion and hecorne an
independent nation. They brought in a law at that lime which was designed
mainly to prevent foreigners - specificallythe British ar that tim- from having
an influence on the political, economic and social life of their country. This gave
riseto the AlienAcr, which wasshaped by the peculiar characteristics of American
~~~....
~hii incient lawisnow beingapplied for quite different purposes. Everyforeign
citizen who has dealings with his own country of origin or with organizations or
individuals based in hk or her countrv of oriein andwho carries on commercial.
economic, social, political or religi&s actikes no1 approved hy the United
States Government or by one of the great trusts is immediately subjected Io the90 BLETTRONICA SICULA
protirion5 ofthis Iau, he niust rcgister ci\sn agcni of the forcigncr in the L'niicd
Siatcs. Rcpisiratiiin leads to such disadiantoge. ihai al1conccrncd prcfcr to lcric
United Siater tcrritori if thci can. II qhould dlio bc ointc cdout thdt whene\.er
the Department of Justice accuses a foreigner of not having registered in lime he
is liable for heavy punishment involving a long tem of imprisonment.
This law practically makes every un-American activity (even the term "un-
American activity" itself iscaptious; a specialcommission investigates un-Amen-
can activities; not anti-American activities, mind you, which would be under-
standable, but "un-American" activities) running counter to state interests or to
the interests of corporations or individuals liable to sanctions.
You see that in such a situation, reciprocity collapses completely: not only
with regard Io visas, the right of ltalians to enter United States territory or the
recognition of the freedorn to carry on certain professions, but with regard to
aciivities of al1 kinds which are not a~~roved of bv the United States or bv
auihoritaii\c Amcrican org3ni7aiions 1;i'othcr ~(3rd;. mush marc scriously anh
dircctl! ihdn in the EKP Convention (r. 117oiu.hich nc\crihclcss suhjccted ihc
agreements undertaken to United States legislation) the arreements undertaken
;th the United States throueh the oresenÏ~reatvand wiich it is orooosed to
ratify are solely dependent onihe lads and will or'the United ~iates'of Âmerica.
This is why this Treaty cannot be likened 10 a normal trade treaty and this is
why the critenon of mutual parity is non-existent.
1should like Io mention another fact. Paragraph 2 of Article XII (dealing with
social security)States that "in accordance with paragraph 2 of Article XII social
securiiy shall be granied to each High Party to the Contract". This is perhaps
no1 very much. bu1 it reveals the characteristics of this Treaty. Anyone who has
lived in the United States and is familiar with its laws and cusioms knows that
the concession referred 10in theTreaty is completely non-existent. Social security
has long since been extended to al1foreign citizens working in the United States,
in addition to American citizens. It isa measure linked to the policy of Americani-
zation and it would not be possible to grant social security to citizens of one
nationaliiy and not to those of another. The Treaty clause makes no diference
10 the existing situation: when it is read, 1 do not say by jurists, but by the
humbles! ltalian workman living in America, who knows that social securiiy has
always workcd likc this and always will, if will make people laugh.
This brings me to the las1point. Our colleague Pesenti has already spoken of
emigration yesterday. Obviously, immigration quotas are what they are in the
Uniied States. Today there actually exists a small minority movement which is
demanding an increase in the immigration quota. Why? Let us neglect the faci
that these reauesis have heen reiected and that the Treatv makes no ~rovision
ior ihcni: ho\ic\cr. the red\.,n uhy an incrcaic in ihc immigr~iion quoi3 hd.
bcen rcqac\icrl has nirthing ro do wiih commcrci31purposc, II iistrictl! p<iliiic.il
this minority, which was beaten in Congress, and which requested an increase in
the immigration quota for ltalian workers, intended it as a means for combating
certain political parties and certain political and trade union groups, and therefore
as a mcans of interfering in the political life of our Country.
1 shall mention a single, incontrovertible fact. In the recent parliamentary
debate 1 had occasion to refer to a declaration by one of the rnembers of the
ECA Advisory Board. Mr. Johnston. On his return from Italy, he declared that
a very considerable sum (about 30 billion lire) should be set aside to aid non-
communist trade union oreanizations. Our colleaeue Bellavista - and 1am sorrv
he isnot here today - int&rupted me al a certainitage to point out that althou&
this money was to be used for this purpose (there is no doubt aboui this), it had
been provided by some popaganda officeor other, not by an espionage bureau DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 91
of the United States. I went in10 the matter very carefully and found out that
this was not truc. It is the Central Intelligence Service which isto carry out this
function, an organization set up under a new law approved by the Conimission
for Military Affairs of the Chamher. The Central Intelligence Serviceorganizes
and manages the entire American espionage system abroad. This agency must
give 30 billion to the trade union organirations which combat left-wing ideas,
which combat communists and socialists. But the Central Intelligence Serviceis
utilized also in matters concerning emigration policy.
The President of the parliamentary commission, Charles Winson (and as you
know parliamentary commissions are far more important in the United States
than in Italy), declared that this new law would allow al1 those persons in a
position to pass on important information to the United States espionage service
without heing subjected to ordinary legislation or having to pass through emigra-
tion formalities. This is a peculiar way to conceive of emigration. The emigration
quotas remain unchanged while the United States of America open up their doors
to those Italian citizens willing to spy for the United States of America, presum-
ably on Our ltalian State. It is so unbelievable that, unless I was certain of my
information, I would not dare to state this here. I understand perfectly that, on
the previous occasion, my colleague Bellavista, who was in perfect good faith,
did not fully believewhat 1was saying, but as you see it was even worse. It was
not only a matter of giving money from an espionage service to trade union
organizations that combat the sncialists and communists, constituting inadmis-
sible interference in the interna1 affairs of Italy. Il was something much more
serious.
This is how the United States of America want to solve the problem of Italian
migration to America! They want to offer the johless hungry ltalians in ltaly to
work for them, to spy on their behalf, on a mass scale; this has heen stated
clearly and explicitly inan officialdeclaration by the President of the Conimission
for Military Affairs. In the face of these facts (because these are the facts that no
one can challenge) al1the fine words contained in the Treaty lose al1their force.
1do not know what ta add to these sad considerations. 1 repeat - Ouropposition
to the so-called Treaty of Friendship and Trade with the United States is not a
nreconceived ovoo,i.ion.
Ilthr Cli.iniber h:id kcn prr.ic,nir.dforr.r.iniinatii>n riiih J tr~detre.ii) .'i>nidin-
itig trul) comrncrsul ch~r.wtc.ri\ti~~rie rhuuld haie \upporir.J it in ihr, inierc\t>
ofour Country, jus1as weshall support other tradç treaties having such character-
istics. But thisTreaty isan additional link in the chain with whichItaly is fettered,
and 1 can assure you, honourahle colleagues, that there is not a shadow of
demagogy in my words. This chain is dangerous for Our Country, dangerous
even for our colleagues of the majority, because many of them are unaware of
the extent to which we are committing Our Country 10 a policy from which it
will be difficult to withdraw.
This is why we invite the Chainber not to ratify the Treûty. Not only do we
i~ ~t~ ~he Chamber not to rat-fv~it. but we add that we shall mesent the facts of
the m.iiicr 10 ihr. c~>untr> .i il;e p:riple. in c>rJcr tii\h<>riih;t the Ginrrnmzni
and th< mdjorii! h:ii.c chiiwn io ctiiiduci our C',)unir! >long ruinous p;iih In
ihe iniercbt-.oi 11a1v.Iioiiuur;ible <olle<ieurs.1ber:,o-. 1,) rricct th13Treat,. noi
to ratify it (~~~lou~~frorn the ~xrrerne%e~).
Presidency of President Gronchi92 ELETTRONICA SICULA
SIGNATUR EH,E ADDITIONAL PROTOCOL AND OF THE EXCHANGE OF NOTES SIGNED IN
ROME BFTWEEN ITALYAND THE UNITED STATESOF AMERICA ON 2 FEBRUARY 1948
(246)
Chairman: The honourable Rapporteur for the majority has the floor.
Campilli. Rapporteur for the majority: Our colleague Pesenti yesterday and
Our colleague Berti today have set out and stressed the arguments previously
presented before the Foreign Afiairs Committee and the Treaties Commiitee to
oo. .e the draft bill submitted to the attention of the Chamher. The Rt. Hon.
Hcrti ~niroducsd hi5 poinis uiih scvr.ral gcnrr~l siin~idcrÿiionr conierning rela.
lions bctuecn Italy and ihe Cnitcd Siairs. pariicularly uith rcfcrcncc 10 ihc EKP
Pldn I shdll noi follow ni) collraeur' in ihii dircstion in urdcr to a\oid too
lenethv a discussion. 1 shalimerelv~eviv Io two considerations made bv the Ri.
HG. Éerti, with whose equanimity i am familiar. In claiming that ihe ERP
agreement represents a link between the ltalian economy and the United States
&onomy, and entails subordinating the European economy to that of the United
States, he mentioned the fact that the ECA administration rejected a French
application for an agreement with Poland to exchange machinery for coal. He
look this fact as an example of the control and constraints exeried hy the United
States on the Eurooean couniries. 1 must noint out to mv 2ol~ea~ ~ Berti that if
his argument is based on these premises,'the constraint that hefears does not
existin reality sinceltaly managed to reach an agreement with Poland to exchange
machinerv for coal without an; inierlerence occurrine and withoui anv exce~tion
being takénby the ECA orga4zations. And this agreement was free~ine~oiiated
by us for the sole purpose of resuming trade with Poland even though it was not
in our immediate interest to do so. There were two reasons for not doing so:
first. because we rcccivcdcoal for machinerv. while we could~ ~ ~ receivcd coal
from the United States without giving anyihing in return, and second, bccause
Polishcoal ismore expensivethan American coal and represents a treasury outlay
of more than one billion.
GiuseppeBerri,sonofrhe Iule Ange10Berli, Rapporteur for the minority: 1did
not Saythis; the agreement exists, but has not been implementod.
Cun~pillr.Kappnricur for ihc majoril): Anoihcr preliminary point raiscd by
thc Ki llon Bcrii. irÿdr hctween c.isi and urii Euriipc is ohsiruclcd by ihc ERP
aprccnicni. My rcply ti)our collciiguc Bcrti is ihaiIiilyhai always m3iniaincd.
and will continueto do so. that tride with east Eurove is comolementarv Io its
cconomy. an ciiori hai alwa)s bccn mïdc Io crpand itand ihc ERP programme
proiidc. idr ihc long.icriii increasc of irïdc bciwccn Iilily and ihc uholc of eilsi
turopc. includiny Ruisis. Furihermorc. the ERP pr<icrammcnrcicntcd in Paris
by the member countries envisages incrcasing east:we$ Europ&n trade to more
than 2 billion dollars for exports and 2 billion for imports, thai is. above the
1938figures.
If trade with east European countries is as low as it is it is because these
countries do not have the funds to pay. The process of industrialization under-
taken by some of them in particular has led them to demand large quantilies of
capital goods without their typical raw materials and consumer goods outputs
being large enough to oiïset the increased import demand. This is true to such
an extent that at the UN European Economic Commission the east European
countries have made requests to import capital goods, that is, machinery, from
the Westby opening lines of credit. This means that these countries would like
to take indirect advantage of the ERP plan by asking the western couniries for
concessions that the latter could grant only with the help of American aid. DOCUMENTS ANNEXED 70 THE COUNTER-MEMORIAL 93
1 do not think there is any point in dwelling further on this topic. Let us
therefore go on and examine the Treaty of friendship with the United States. Our
colleagues of the minority have stressed the political value that must be assigned
to this Treaty and the Rt. Hon. Berti has, on this point, referred alsci to the
section of my report which states that there isan evident interdependence between
economic and social factors and political factors in the Protocol under exami-
nation.
1confirm the remdrk, also after the criticism made by the opposition colleagues
and refer the opposition Io Chapter 1X of the United Nations Charter, uchichail
countries, eastern and western. have acceoted and countersiened. in the oart
which explicitly acknowledges that the dévelopment of economic and social
relations is themost effectivemeans of bringi.g -~opl.s closer together and the
best ~olitical means for fosterine international Deace.It is in thi; lieht that we
haveconsidered the agreement sibmitted today For your approval. &en the Rt.
Hon. Berti has declared that he considers economic and trade treaties as the best
means for achieving peace betwecn peoples. However, in examining the Treaty
submitted to yoii for approval the Rt. Hon. Berti has raised so many "ifs" and
"buts" that he has actually voided his premise.
We. instead, are more consistent and can assure Our colleague Berti, and al1
Our other colleagues of the minority, that when the Italy-Soviet Treaty comes
before Parliament, just as we did before the Foreign ARairs committee, we shall
make no suhtle distinctions in examining and approving it, precisely becslusewe
truly consider economic agreements as the best way of cementing the peace that
is inOur hearts and minds (Appl<iusrfromthe Centre rin d ight).
Our colleague Pesenti has said that this Treaty submitted to Parliament for
examination is not a true trade treaty. This was actually clearly statedhy us in
the majority report. This could he neither a trade treaty nor an agreement on
emigration: it is simplya treaty of trade, of the establishment of friendship, which
defines the premises and lays down the general principles to be respected by the
agreements that will follow, we hope soon, in otder to regulate trade ~elations
and emigration.
This Treaty cannot therefore be judged by the same yardstick as normal trade
agreements: it is a general protocol, not a particular one; it is not an end in
itself, but merely the basis for other agreements which will develop the relations
between ltaly and the United States on a positive basis.
It has been stressed that this Treaty isjus! another link in the chain binding
ltaly to the United States: it has even been added that this Treatys complemen-
tary 10the North Atlantic Tredty and to the ERP agreement.
1wish to point out to my colleagues that the necd10 revise the old 1871Treaty
was Celtas early as 1946and the decision to reviseit was taken when we still had
the tripartite Government in Italy: the delegation led by the Minister Lombardo,
which left in mid-1947, completed its work before the end of that year; the
agreement was stipulated on 2 February 1948 in Rome. The ERP agreements
date back to 3 April 1948: it is therefore absurd to consider this agreement as
complementary in that it preceded both the ERP agreement and, to an even
greater extent, the North Atlantic Treaty.
GiuseppeBerti, sonof the late Ange10Berti, Rapporteur of the minority: The
ERP accords were dealt with much earlier . . .
Campilli, Rapporteur of the majority: The drafting of this Treaty, even before
the Lombardo delegation, was begun by OurEmbassy inWashington and by the
Ministry of Foreign Affairs. CiuseppeBerti. son of the lareAnge10Berti, Rapporteur of the minority: The
tripartite Government would not have approved such a Treaty!
Campilli, Rapporteur of the majority: You say this today; but just as you
accepted and managed UNRRA aid so you would have accepted this accord.
The opposition criticism has dwelt in particular on the alleged reciprocity and
parity of rights. It has been said that this is a mere figment, a pretence. The
dilïerent socio-economic structure and, even more, the absence of riders and
guarantees, make the statements of parity contained in the Treaty completely
nuIl and void.
Our colleague Montini has already given his reply, if the different socio-
economic structure should stand in the way of treaty negotiation, this would only
become possible hetween power blocs of comparable strength and capacity.
All treaties are designed to achieve equality and reciprocity of nghts. The
objective of each negotiator is Io place the weaker State on an equal footing with
the stroneer countrv. No treatv. however. has the nower to olïset the ineoualitv, ,
of riruciiirr. ihai cxisi' hei\iccn one counir) ;ind an.iihcr Jihi ;iiguing froin ihc
intcrn;ition<ilticlditiihc ii:iii.?n.ilfield the priii:iplc of ihe eqii31ii) hcrorcI;i\i
of citizens cannot make up for dilïerences of capacity and opportunity between
individuals. This is true under al1systems of government.
However, the critics object, in such cases provisos are established and guaran-
tees introduced. This is true. But can it truly be maintained that no provisos or
guarantees are envisaged in this Treaty?
1s not the most-favoured-nation clause, which automatically extends Io ltaly
al1the advantages and favourahle conditions already granted or to be granted
hy the United States to other powers, the best of guarantees?
Moreover, our colleagues of the opposition, who are always such thorough
and watchful perusers of documents, this tirne failed to focus their attention on
the premise to the additional protocol. The additional protocol in fact States
that
"in consideration of the senous economic difficultiesfacing ltaly and those
that are foreseeable in view of the previous damage caused by military
operations on ltalian territory, and the war spoils taken hy the German
forces after ltaly declared war on Germany, of Italy's present impossihility
to satisfy the minimal requirements of its people without aid, or the minimal
needs of ltalian economic recovery, as well as of Italy's lack of foreign
currency reserves"
a number of provisos and guarantees must be envisaged, as indeed has been
done, for the precise purpose of protecting the ltalian economy and finances
against those of the United States.
The opposition then dwelt on other aspects and it is precisely on the strength
of the latter that ils criticism can he seen Io be unfounded.
It was even attempted to invalidate the clause governing the exercise of
professions and the recognition of degrees and diplomas issued hy out univer-
sities and educational bodies. The wording in the report of the minority is as
follows:
"Suffice it, for example, to point out that, by means of an internationally
inadmissible procedure, the Stateof Connecticut recognizesas valid only the
degrees ohtained al the Universities of Naples, Rome and Bologna."
1 shjuld likc iu poini oui io ni! c,>lk~g.leBerli tIi.11iheic rn~iterï ;irc h~ndled
in ihc >xnicua)in li;il!The itcyree. ~TJIIICJh! ior~igncounir! ifirenoi cniitleJ 0OCUMF.NTS ANNEXED TO THE COUNTEK-MEMORIAL 95
10 automatic rccugnition in ihis countr) but iiiuit he riibmiited 1,)the final and
dctinitive jiidgnient i~fihe scnaic and fx"'iliiei. iihich ha\e ihc po!ier to 3cccpi
or rcject [hem,just as they may ask the applicants to take suppl~mentary exami-
nations. (Interruption hy the Deputy, GiuseppeBerti. son of the lule Angelo
Berri.)
Wecannot thereforc exoect othcrs to er-nt what we ourselves arc unwilline to
concede.
Then ihere is thc other question on which there has been further heated debate
todav - that of eniieration.
It Las been said that ifthe acknowledged equality is only a pretence, weshould
at least try of olTsetthis by meaiis of the effective facilitation of emigration. 1
can assure mv colleae-e Berti that this issue. which is of vital imoortancç toour
Country. has never been neglectcdduring negoliarions. But no one ismoreaware
than the Rt. Hon. Berti, who has lived inAmerica for a long lime. and who has
lived in America in contact with the trade unions, of the delipatenessand serious-
ness of the migration issue. Uncontrolled, mass emigraiion causes great anxiety
among the body of workers. It tnust not be overlooked that, in the pas1 two
,ears..~ ~ IR0 has made huee labour force transfers 10 the United States. The
trade uniuns arc concerncd aboui c\ceeding the saturitilon l~mit~,~ndfear .Ireturn
ofihc 1929.1930crisis Ai thc polirical and gurcrnmr~nt:rllctcl. the Uniicd Siatcs
has recently displayed greater sensitivity to our needs, although ltalian migration
is bound up with a complcx issuethat calls for careful examinaiion. Furthermore,
I am astonished ihat the criticism shauld come from the communist henches.
Fears and reservations concerning our emigration do no1 come only [rom the
United States. This is proved by a recent faci. As Our colleagues are aware, the
Franco-ltalian Customs Union is about to be signed. However, Our colleagues
also know that the provision contained in this cusioms union. particularly in the
case of the transfer of labour, has run into serious opposition from the French
communists. Last week the newspapers published the following news item:
"The French meialworkers, mincrs and farmers unions belongin; to the
General Confederation of Labour, have today issued a declaration against
the entry to France of Iialian workers envisagcd in the agreement signed in
January by Count Sforza and Robert Schuman. According IO the unions,
the agreement provides for the migration io France in 1949of 87.000 ltalian
workers. The declaration states ihat there are 100,000unemployed in France
and while even one of them remains jobless ihere will be no question of
recruiiing foreign labour of ivhatever nationality."
This shows that the criticism made by the opposition is at least exaggerated.
The Ri. Hon. Berti meanf - aiid 1acknowledee-his com~letesincerit, on this
poini - thxi his ohjeclions and ttiosc of hii collcagucs ;ire not prccnnccived Rut
iiii thcir poliiiçal posiiiunhich neccrr~rilydnd logisdllylcadsIO ihcir upporiiion
to ihc Trelis. Tlie RI Hiln Pesc~itisi;iic~lso inuch uuiie cle:irlv \estcrd:iv u,hcn
he declaredthat his group will vote not only againsi the conté4 of rhi:~rcat~
but also in order to cxpress the opposiiion's lack of confidcnccin the Govcrnment
and in the latter's capacity to look alter Italy's interests. There is, in Tact, a
twofold preconception in their approach which actually mÿkes any objective
examination of the Treaty provisions superfluous, namely, iheir opposition to
the Covernment aiid ihat againsi any agreement with the United States.
The majority, on the other hand, requests the Assembly 10 approve the draft
bill, certain as wearethai it is in the country's intere(Applu~rs eron! theCentre
and the Righr).96 ELETTRONICA SICULA
Brusasca(Under-Secretary of State for Foreign Atfairs): May 1have the floor?
Speaker: Yes, you may.
Brusasca (Under-Secretary of State for Foreign Affairs): 1 merely wish to
emphasize the time factor, as has already been mentioned by the Rt. Hon.
Camnilli. This Treatv was discussed. stinulated and siened before al1the other
iniernational agrrrmcnts. 10 u,hich the prcseni one is iniendcd io he îomplcmrn-
tan. ucre nepotiïicd 1furthrr lidd thai, durine the dehliic, thcre u,li\ coniuri<in
~t~een this Treatv. which is eeneral and reeul-tor~~ ~ ~ature. and normal trade
agreements.~Theiistake liesyn the fact that the igreementsto which hoth the
Rt. Hon. Pesentiyesterday and the Rt. Hon. Bertitoday werereferring are merely
a specialdevelopment, limited in time, of the general rules normally provided for
and established by general treaties of friendship. trade and navigation.
However. there ii one ooint. honourable colleaeues. which shows what was
the main concern of the ~over"ment and to which ïwish to draw your attention.
Much mention has been made of reci~rocitv. It has ken said that we cannot
achieve reciprocity vis-à-vis a nation that is~conomically much more powerful
than we are, as is true of the United States. However, there exists another kind
of reci~rocitv which should orovide much food for thoueht. for vou oonosition
drpuii;s in iarricular: ihis ishuman rcciprociiy. In lid! iIhcrrarc 3 içu ihousand
United Statci cit~zcns.ilIrnos1 iilol'whoni livingin circcllentcconomic i.onilitiona
who. oreciselv hecause of these conditions. cai easilv obtain the orotection and
assistance théyneed. Today there are more than 600,000 ltaliani in the United
States who want and have heen able to keep their Italian nationalitv. The Treatv
of establishment - which is the essential and most important partof the accord
we are discussing - has the express aim of defending these 600,000 Italians.
Although among this numher there will certainly be some who have succeeded
in attaining very good economic conditions, the vast majority are salaned
workers, retailers and professionals; we have tried to ensure that these fellow
citizens of ours are treated in full equality with United States citizens, defending
them, as it is our duty and right to do, and ensuring that their conditions are
such that we may al1be satisfied.
GiuseppeBerti, son ojthe late AngeloBerti, Rapporteur of the minority: What
advantages do they get from the Treaty?
Brusasca(Under-Secretary of State for Foreign Atfairs): It is true that, like al1
other States, we could not expect to limit the internal power of the United States
by means of an international agreement. Therefore, Our.fellow citizens will be
subject to the internal limitations imposed on them by the sovereignty of the
United States; even the Rt. Hon. Berti, who has been to the United States and
has seen also the disadvantages of life in the United States, must admit that
Italian citizens living in the country enjoy a number of rights and conditions that
1fervently hope will be enjoyed by Italian citizens in al1the other countries of
the world (Applausefromthe Right and Centre).
Speaker: We shall now proceed to examine the articles.
Let Article 1he read.
Parri (Secretary), reads:
"The President of the Republic is herebv emnowered to ratifv, and the
Government to proceed to fullyimplement, ihe f6llowing~~reeméntssigned
in Rome, between ltaly and the United States of America, on 2 February DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL
(a) Treaty of friendship, trade and navigation;
(b) Protocol of signature;
(c) Additional protocol;
. . Exchanre-of Notes."
Speaker: No amendments having heen presented and no one having asked for
the floor, 1put it to the vote:
(Irisapproved.)
Let us go on to Article II.Let it be read.
Parri (Secretary), reads:
"The present law shall corne inIo force on the day of its publication in
the Ojficiai Gazette."
Speaker: 1put it to the vote.
(IIis approved)
This draft bill will be voted on laterby secret ballot. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 99
Mention must also be made al this preliminary stage of the sui ~enerir nature
of this Treaty which, necessarily conceived for application in normal tiines and
finding our economy in an abnormal, almost ruinous, state, has had ta provide
for exceptions to the commercial and currency agreements of a general nature
which are, or may he, imposed by this stdte of necessity. This right of suspension
with regard 10 several articles of the Treaty is provided for and defined in the
"Additional Protocol", the validity of which or any possible modifications to
which, are obviously linked to the further developments in this exceptional
situation.
The underlying principles are simple and straightforward. Full respect of the
respective sovereignties and full equality of the contracting parties, and thus
reciprocity of treatment; systematic application of the principle of the most-
favoured nation and thus mutual granting of the most-favoured treatment ex-
tended to foreign citizens and interests; spirit of friendship in the application of
the Treaty, benevolencc in cases not covered by precise regulation, and in any
case fair play. Mention must be made of the great care taken to avoid al1
unfavourable discrimination in reciprocal treatment. Obviously a modern trcaty
could not be based on general principles which clashed withthose mentioned
above.
The Treaty under discussion replaces the one stipulated hy Italy with the
United States in 1871.The latter, now in disuse, was denounced in 1937,when
the previous régime decidedto replace it with a pact based on ils nationalistic
and autarchic premisses. Inour historical phase of protected national economies,
now movina howcver towards a healthv and necessarv exoansion. and thus
t.i\idrila:grc.Herircc.ioni oi ir.iJe. ii,h;ireturn to the licc-ir.idz guld brîridard
oi 1x71 i, un1ortun:ttcl) inipi~~rihlc.the niost-ïai.oured nati<>iicl;iuw uith 11,
ca.acit. for reducine tariffs-and barriers is without doubt the hest instrument
ior ~chie\ing {hi, purpo,c It ii commoii kn,)wlcdge that the on-g,iing Anne.'!.
ncg<)iiatiun>icnd i<~udrdr:in xiioni,itic gcncr:<li/atiuiiniging 211 the nunicrou.
p:irticivdiing States irithc iiiu\r Ini.ourdhle tdrlii ,.,1srzrbr~ntl>18)k hopcil.
ihe ~nnecy negotiations overcome the thousand and one difficultiésarising from
clashing and interlocking interests and succeed in reaching a conclusioii, a part
of the provisions of the present Treaty will be superseded and transferred into a
more general framework. A reservation in this senseis expressedin Article XXIV,
paragraph 3, which also makes provision, ohviously. in favour of Italy, for
possible exceptions to the most-favoured nation rule in the case of a Customs
Union. However, in viewof the present lone-term orosvects. uncertain outcomes
and in any case gradua1 applicatioii, the ?maty in the meantime represents a
cautious gudrantee of the healthiest and most favourable normal régime ofItalo-
United States trade relations.
ESTABLISHMENT CLAUSES
In the usual way, the Treaty deals with the followingmatters: general rrearmenr
of cilizens of the orher parry(Arts. I-XIII), rrade andfinoncial operations (Arts.
XIV-XVIII), navigation (Arts. XIX-XXII), transit (Art. XXIII). Articles
XXIV-XXVII contain several general provisions and specifya numher of exclu-
sions, exemptiotis and reservations. A Supplementary Protocol, which interprets
several provisions, the Additional Protocol mentioned above, and two notes
exchanged between the negotiators envisaging and promising an integrative cul-
tural agreement, al1form an integral part of the Treaty.
The Treaty will be of ten years duration, althougb if not denounced within
one year before itsexpiry, it shall automaticallyheextended for a further indefiniteperiod, although always with the possibility of withdrawal with one year's prior
notice (Art. XXVII). Any disputes shall he referred to the Internaiional Court
of Justice (Art. XXVI). There are special riders by the United States concerning
non-extendable preferential ireatment for Cuba, the Philippines. the Panama
Canal Zone, and by ltaly concerning the free territory of Trieste, the Vatican
City and San Marino.
The "establishment clauses" are not innovative with respect to the customary
orovisions of international treaties. althouah thev do resoect the criterion of the
mosi Iihenil inicrprciaiiun 2nd cxirnrion on thc gcner;il b~iis or C~ULIIIIoY r
ireaiment and lu;l)s wiih ihc rcscr\aiit>n ihai nniional Lawi 2nd regul3lionj
muri bc rc~oecicd The frJeral iun>tiiuiion of ihc.LLniiedSiaic\ fiive, ihibrcscri,a.
tion a soecial sienificancesince in some cases nrovision is made-for the extension
to ltaliof the most-favoured treatment granied to foreigners hy the individual
federal staies: ihis may lead to limitations and inequalities. However, it should
be noted that this condition is true for any foreign country entering an agreement
with the United States (as with Switzerland), the principle of the most-îavoured
treatment continuing to work in our favour.
After guaranteeing the exerciseof the natural rights ofman (Ari. XI), regulating
military service by means of logical provisions (Art. XIII), il goes on 10 aiiirm
quite emphatically the frcedom, except in the case of the secrecy of military
information, of publication and information (Art. XI). This Rapporteur sees no
reason for objcciing to this clause, and indeed considers it useful and fully to be
approved, even if,for the sake of hypoihesis, it were to act in favour of the other
party only.
The first fcw articles. which are also the most important, guarantee for citizens
of the other party, and for thejuridical persons, commercial companies. organiza-
tions and associations established by them, the exercise oCcommercial and non-
commercial activiiies in the hroadest sense. Full nghts are thus granted 10carry
on any activiiy: 10 acquire, own and manage movable and real properiy: lo
organize. direci, and control companies, to hold office; to make and rcceive
legacies: io protect patents and trademarks, etc., with complete freedom to take
leaal action, and to enio..oro.ection from undue interference, etc. Taxation
mitters (Art. IXI arc also reeulated bv....-vine the o.incinle of reciorocitv based
on the most-favoured treatment. making sure that any discriminatory procedures
are excluded and that the parties have the right to enter into special agreements
with third parties under certain circumstances.
Article XII provides for extension to cilizens of hoth countries of the bcnefits
of compulsory social insurance. Even though this obligation is normal practice
in the United States and provided for by its interna1 legislation, ils formal
embodiment in an international contract is an important fact.
OBSERVATIONS. OBJECTIONS AND SPECIAL CONSIDERATIONS
Whenevcr diferences in American legislation could lead to limitations (Art.
VII) of the excrcisc or rcal property rights or other real rights or of the free
possession and disposal of goodsobtained by succession, ltaly grants a treatment
equal to thai of the siatc of origin of the American citizen. It should be notcd
thai such diFerences arc found in only a few slates and il is to be hoped that,
unless there is a furthcr movc towards uniformity. the coming into force of this
Treaty will help bring about revisions favourable to Italy.
The same hooe is to beex~ressedconcernina the exercise of the liberal ~rofes-
sions,which are in Pactal1pe;mitted undcr ~rticle 1.except for the legalpr&ession
and those involving the appointment of public officiais; however, difficulties orsures unfavourable to third parties is specificallyexcluded.However, as mentioned
above, the additional Protocol erants Italy. in consideration of the peculiar
difficultiesit faces. a te.oorar. fkedom of manoeuvre with reeard both io trade
quo13sand to intcrndii<>nilp:<)nieritsrcgul.itcd b! Article X\~II
The s:inie normr oi irccdoiii. tacilit). and a\3113bilit!.arc niutuall) granlcd b)
the t\io p3rtiç, 10 ~.IVIL?~IIOIand transi1 tr:i& in Articles XIX-XXII II ii
significani that the obliiation to grant national treatment or most-favoured-
nation treatment to fishing, coastal sea traffic and inland navigation has been
excluded.
Aoart from the above limited orotective measures and of several iustified bans
and.restrictions contained in ~riicle XXIV, the Treaty explicitly rinounces any
measures standing in the way of competition, Iimiting the access to markets, or
favourinr the settine UD of mono~olistic situations. Full aereement can onlv be
expresse8 with this;and the use Of indirect forms of protktion, such as those
implemented by means of artificially severe health and hygiene controls on
imports are to be rejected. This mention is not without reason, as ltaly has
occasionally had cause for complaint against this American practice in the case
of food imports.
Italy is not, unfortunately, the right country to give lessons in free-trade
economic policv: however, since both in the oast and in the uresent. althoueh to
a lesserexient, one of the major obstacles to ihe expansion O? international iade
has beeu high Amencan protective tariffs, il is worth expressing the hope that
the tendency to reduce customs barriers will continue to grow in the United
States.
ADVANTAGES FOR ITALY
TlicTrcst) cxplicitl) c\;luJc\ (Art XXIV, para. 71311) posrihiliryof niùdiiying
th<:noturiously re;trati\c immigratioii (Ilnbin Fd\aur ~i It:il!.3s ilrc.uJt of
iihi~h obiection, mil ~.riiicijniIidic hcen r:iiscd4asin.t il Ilo\i<:i.cr.this opnosi-
Government to do its best to obtain changes, improvements and amendments,
such actioncould no1and cannot becarried on through a simplegeneral establish-
ing treaty. The utility of this Treaty and the reason for approving it lies in the
recognition it gives to our citizens who have migrated there of the best allowable
conditions of freedom to carry on their activities. Similar conditions have beeu
granted to American citizens in Italy. However, il is difficult to argue, in viewof
the huge number of our migrants and the variety of their interests that the Treaty
also in this case is more favourable to the United States than to us.
The disproportion between the strength of the two parties is taken as proof
that the Treaty willbe ineffectivein practice forthe weaker party. This argument
is unfounded. Leea-ly ..eakine. -ased as it is on the strict orinciole of reci~rocitv.
the l'rî~ty doer no1 \cl up coitditi<insof privilcgc. ctcn ~oi.erliy. A >in<iesniiili
posiiblc c<~ndition~f I.i\our 15 aciorded 10 ihc Unitcd Sldlc\ by p:lrqr~ph 5of
lhc Addititinrl Pr<>io:olshoulJ lt.il\ hc forced tcihlock the pasmeni oie~pr~inri.i-
tion compensation: this is a ver; small price to pay for ihe more extensive
advantages granted Io Italy.
There is no doubt that the Treatv provisions reflect the different interests of
the two oarties. The United States have above al1attemoted 10orotect themselves
against xenophobic tendencies in general and in particular against the possible
onset of discrimination against their interests and ~ossible exclusions or limita-
tions of activity in theltaïian market. Italy has attehpted to obtain the broadest DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 103
possible conditions of work and the protection of special current needs of ils
trade balance and ils balance of payments. How can il be said o priori that the
Treatv is an instrument in the hands of the United Statesand that it is of no use
ti)liai)'! The Treatv uill noi open thedoor io thecÿpiialisiic interel* t)fAmerican
ciiiïens. but ïn incorreci or u,eïk or wrrupi cc<inoniic policl could open it niore
than necessaryor without the necessarysupervision.
And il could be said that this instrument is more useful to the larger of the
two parties if the smaller did no1 have huge interests in the former. III actual
fact, ltalian interests in the United States have a far greater importance for Our
country than the relativeimportance to America of ils interests in Italy. Therefore
Our interest in the Treaty is greater and, in general, also its benefits 10us, in that
il helps provide a better environrnent for the development of al1 Our activities,
not onlv economic activities. in that counirv. The same oreferential irade clause
can pr&umably be of as geai a benefit to italy as it is io the United Stiites.
The correctness of the orinciples underlying the Treaty, ils logical slructure
and comoleteness. the desGabledovetailineofthe inieresls of the iwo countries.
the spccial imporiancc ofdelining our rel.inon$ uiih the UnitcJ Stxics. the nature
ofthis inqirument which. b, cnhiiniing the prospect. of Jevelopnient of reciproral
relations, nevertheless (hem ii the iramework of a liberal conception of
the world economy, help to make it worthy of full approval.
Parri, Rapporteur of the majority.
REPORT OF THE MlNORlTY
Honourable Senaiors. The reasonswhich induced the minority of the Commit-
tee to table its own report can be summed up in the following points:
. (1)The "Treaty of Friendship, Trûde and Navigation" between ltaly and the
United Statesof America signed in Rome on 2 February 1948and presentedfor
discussion. with oraiseworthv DromDtness.onlv 15monihs alter iti sienature. is
n'ot one oi those'treaties thni, on thébasi; of ;eciprocal benefits and the respect
of the political and economic independence of the two contracting parties, can
be accipted with satisfaction or receive the favourable vote of colleagues from
al1 sectors of the Senate. No. This time we are dealing with a treaty of a new
type that has no precedent in the treaiies so far submitied io us for approval. It
is-a treatv that.beneath its a..warance of eaual.tv a.d reciorocitv, actuallv
sÿnciions3 situarion in uhich Iialy is manifesily infcrior and ~raciic~llv rniai~s
usgiving up any aitempt ai defenceagainsi ihr poliiical and economic peneirdiion
of North Amehcan im~erialism
The principle of "nïlional trearmînr" (menliontd in the prcamhle and u,h~ih
ihen recurs in praclically al1the articles) kas been gi\,en tuo uide :in acceptance
in the present freaty and can only work to the exclusive advantageof the other
High Contracting Party. It is true that the principle appears to have beenapplied
on a footing of perfect reciprocity so that, while it is established that American
citizens and American companies mus1receive a no less/avourobie rreorment in
ltalv (for a wide ranee of issues)than that eranted to ltalian citizens ancl Italian
compànies, provisioi is also made for bGh to enjoy in the United States a
treatment no lessfavourable than that extended to American citizens and com-
.a~ ~~ ~H~wever. it is also true thai the disor,oor.ion in the economic oower of
the IWO suntracting pari oc^ii so grcal ihat thc ïhove-mentioned equlility and
reciprociiy be~.omcquiic illdsory SuHice iito consider Article I uf the Tre~i) or
Article IV in order ro percci\,eimmcdiatel) ,i.ho3ctuall) hcnetits from ihe ~~riniiple 104 ELETTRONICA SICULA
of "national treatment': that is, who would and will be capable of carrying out
the activities and investrnents mentioned in the articles cited, outside the borders
of his own country. In drafting these clauses of the Treaty no account has
evidently been taken of the special situation regarding ltaly and its needs to he
safeguarded. No thought has heen given (deliberately or not) to the fact that we
are very poor and the Americans are very rich. No steps have been taken to
avoid American capitalism penetrating Italy without restraint and without con-
trols, doing in Our country what we should never be able to do in the United
States.
(2) The solely apparent value of the aforesaid principles of equality and reci-
procity appears clearly in al1its harshness in one of the final provisions of the
Treaty (Art. XXIV, para. 7). Here it is excluded that the Treaty can in sny case
"have anv effect on the laws and reeulations in force in each Hirh Con-
iracting &rt! conccrning irnn~i~rati,~;or the ripht uiexh High Co~racting
Pari) io issue anil enfurce I;i\idnd regiil;iiion\ c,~nrcrningiiiiinigratiun".
This means in practice that, in exchange for the huge range of action the United
States has acquired for itself hy means of the Treaty, we are denied even the
small benefit of increased ltalian migration to the United States, even a small
relaxation of the discriminatory "quota" system which offends and damages us
more than any other people. Article XXIV, paragraph 7, of the Treaty thus
completely voids Article 1which gives solemn assurance that the "citizens of each
High Contracting Party will have the right to enter the territory of the other
High Contracting Party and to reside and travel freely in the said territories".
The immigration laws do not admit of any modifications and the only citizens
who will he able to travel, reside, etc.,will he the American citizens who wish to
come to Italy. How's that for "equality and reciprocity"?
(3) Also to he criticized in our opinion is the widespread use of the mosi-
fivoured-nation clause, as a result of which (for the duration of the agreement),
ltalv will never he entitled to erant anv advantaeeous or favourahle treatment to
ihc citizen, or the e:onomii rel:iiionçu iih snoiher countr!. \iith,>uiihis ireaimeni
hating to be immcJiaiel) and equxll) exiendcd ïlsii io ihc United Siaies Clc:irly.
it ISiniendrd io use ihis ,yitem IO hind Itîls c\cn inorc clo\el) io the Wesiern
bloc and to deprive her of al1possibility of movement, of any different orientation
in her international economic policy. This is effectivelyproved also by the excep-
tions envisaged in Article XXIV, paragraph 3, to the rnost-favoured-nation
treatment: as is quite apparent, these exceptions will prevent Our country from
hoosting ils trade with the Soviet Union and Eastern Europe, that is, with that
part of the world which is alone capable of absorbing Ourmanufactured goods.
This compulsory orientation, without any chance of change, for the duration of
ten vears.iscondernned bv us as damaeine to the economic future of our countrv.
(3)Article V. pÿragr~ph 2. rcprcjenis a rcser\,ïiion ih:itiientirclv in ihs intcrï,i
of Amcrici. in ihe case di poiiible nstionalizÿiion mid,urei in 1131!. .4lihough
ihc orincii>lcof the "orumpi r>avmcntoia iuii :andeltscii\,e coni~ens~rii>n"I:iid
down in ihis article can hécbkidered to iorresnond to the co&entions of the
science of international law and to the establishédpractice betw&n States until
the First World War, after that period, and even more so after the Second World
War, the verv ,r.nciole has been shaken to the foundations and todav even
nîiionalisiic doctrine is beginning IO display home doubi in ihi, connrcii<)n
Onder ihcsc circumiianccs. Articlc V, paragrïph 2. tends Io mïkc ii:onipuls6)r).
hj.I~PUIJ brtneen Italy and ihc Uniied Si~iei. to acccpi a hc.ii\ oblieaticin IO
pay compensation which would bequestionable if it weÏe really d"e (tothe same
extent and according to the same criteria of time and currency), in accordance DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 105
with the genernl international law currently in force. Clearly, were this clause not
to have heen dictated "less hy Italian interest than by Amencan concern" (the
words hetween quoles are those of the rapporteur for the majority), the article
in question could only have been expressedas follows:
"The citizensand juridical persons and associations of each of the High
Contracting Parties shall, in the case of expropriation of their property
within the territory of the other High Contracting Party, be treated in
accordance with the generally accepted pnnciples of international law."
(5) The freedom of belief and worship that are guaranteed by Article XI,
paragraph 1, to citizens of each High Contracting Party in the lerrilory of the
other High Contracting Party are no longer challengcd or subject to special
conventions in any civilizedcountry. Since explicitmention has deliherately been
made in this Treaty, we must ask ourselves why itwas not decided to add an
equally essential freedom, that of thought. The trial of the 12, the arrest and
imprisonment of Howard Fast, the persecution even in foreign territory of the
great anti-fascist Gerhart Lisler,dispense us from any need to discuss this matter
further.
(6) The acceptance by the IWO High Contracting Parties of the "pnnciples of
the freedom of the press and the free exchange of information" (Art. XI, para.
2), although theorelically unimpeachable, actually benetit, as the rapporteur for
the majority himsell'was forced to admit, only the other Party, which isthe only
one in a nosition (and has alreadv done so) to Rood our country with his
ohservers,;nformers, investigators, photographers, etc., as wellas with his puhli-
cations and films, none of which certainly contributes to the education and
improvement of our people.
(7) Articles XIV, XV and XVI, which exclude al1bans or restrictions on the
importation, sale, distribution and useof any narural, cultivated or manufactured
nroduct hv the other Hirh-Contractinr P-rtv. a..well as makinr no -istinction
between necessary and luxury items, cannot fail to hring a smile to the lips of
those familiar with the history of United States trade policy, whichcoincideswith
the history of the most stringent protectionism and the highest customs tank
A country that. in this field, has had laws of a severity without parallel, such as
the Hawley Smoot customs law or the Webb-Pomerane law, cannot convert from
one day to the next to free trade, free competition, and to the fight against
monopolies. Also here al1 these wonderful things are used to create a dejàcto
situation to the exclusive benefitof the United States: and when we read, in
Article XV, that the laws, regulations and decisions referring to the customs
classification of products or that customs duties
"will be applied uniformly in al1the ports of each High Contracting Party,
except when otherwise specifically provided for in the legislation of the
United States of America with regard to the importation of products in its
own territory and island possessions",
we have the key to this peculiar, one-wayconceplion of equality and reciprocity
which is to allow the United States to continue to do as they please in and with
our country.
(8) Article XII, paragraph 2, which extends to citizens of both States the
henefits ofthe compulsory insurances (old age, unemployment, sickness, invalid-
ity, etc.), adds nothing new to what already exists because this concession was
granted some time ago hy law to al1 foreigners in the United States whatever
their country of origin.106 ELETTRONICA SICULA
(9) Article XII1 of the Treatv is actuallv,.uite e-otesque. It is uuite ohvious in
iIci ihtit a Statr cdnnut. iindcr iri1trnaiii1n;ilIau. suhjc;10 \cr\icc and dulies <ii
4 militxry naturc the :itiltns oiiorcipn States pre:nl in ils icrritor). ,\rricle XII1
alloui the coniractinc St;iics io do ianJ r.lr.~rl\dro in ihis c.iw the Unitcd SI3121
is in the forefront) w%atis not allobed in n&al practice. The only alternative
for those concerned is to go and do their military service, in time of war, in the
armed forces of the State whose citizenship they hold - that is, in any case to
go and fight for the "common cause"! - should this be what they prefer to do.
The question that instinctively cornesto mind inthe face of such a blatant waiving
of the general principles of international law is: cuiprodest?
(10) No less grotesque, and even a little cynical, are Articles V and VI of the
Treaty where they guarantee that the citizens of each High Contracting Party
imprisoned by the authorities of the other High Contracting Party shall receive
reasonable and humane treatment, and where they estahlish that the homes and
officesof citizens and associations of each High Contracting Party situated in the
territory of the other shall not he suhject to illegalinterference oe rntrj'To make
public commitments of this kind rneans that here or in the United States (or
indeed in hoth the High Contracting Parties) it is legitimate and customary to
suhject convicts to unreasonable and inhuman treatment and to enter the homes
of citizens and molest and tonnent them! This Treaty is a precious confession,
although we do not know Io what extent Our Ministry of the lnterior and Our
Ministry of Justice agree with il!
(11)The continual referencesmade in the Treaty clausesto the laws,regulations,
etc., of the High Contracting Parties would require, in order to make an accurate
evaluation of the benefits accruing to the Italian side, an extensive and deiailed
knowledee of the laws. reeulations. et... of,the United States of America. Do
those who have negotiatedUthisTreaty and those who will have to implement it
have this kind of knowledge? We fear not, and this lack of knowledge can only
be of concern to us because we are convinced that the state of ~merican leeisla-
iion. made so compli~iicd and unwirldy hy iti fcdcral Isw,. ihc I3us <~ithc
individu31rtaiei and )CI other Ia\i,s.ii>uld hold )CI iurrhcr unplcasdnt rurprihc,
in store for us.
To cite iust one exam~le. the United States have laws ranzine from the Afien
Act of 1798 to the ~enhnl Act of 1903and the Act of 190fo~ex~ulsion from
the territory which can make the clauses estahlishing equality of iuridical treat-
ment hetween nationals and foreigners practically unenforceable, and can he used
to prohibit the landing and settlement of foreign citizens and to prohibit al1
activities by foreign citizens as un-American activities.
(12) For the above reasons we consider that the clause of the Treaty which
authorizes the citizens of each Hieh Contractine Partv to carrv on their orofes-
sional activities in the territory of ïhe other ~i~<~on&actin~ party (Art. i,para.
2) must, as far as we are concerned, remain a dead letter in so far as the laws of
the individual states contain clauses which restrict the wide-ranzine. freedoms
yrdnicd undcr the Trcai) and noihing is saiJ 3hout thc possihili~ <;frcpcdling
suih Iaui. On the coiiirary. uî hclici,cthai the! will rcnuin more >olidl) in forcc
ihan e\er and ihat our icll,)wiiti7cns \iilntii k lblc in future. as ihcy ha\c nui
been able in the Dast. to exercise their orofessions exceot in certain states and
onl) aftcr idking 3 ccrtaiii iiuinhcr oi cxiiniinaiion>. Furihcrniorc. on th!. qucs-
iion. c\cn ihe riipporteur l'orthc majorii) does no! concedl his ci>ncern2nd is
iorscd ti)admit thdi "dillicultics or inr~ualiiicr arc Iikcl\ tu dric as J rcsuli of
the regulations governing recognized qklifications, whkh Vary from state to
state" and concludes that "The next important task will he to promote the
adoption of common and liheral standards". DOCUMENTS ANh'EXtiD TO THE COUNTER-MEMORIAL 107
In conclusion, we believethat in the "Treaty of Friendship, Trade and Naviga-
tion" between ltaly and the United States of America which has been submitted
to the Senatc for approval no provision at al1 has been made to protect the
reciprocity of rights which mus1 he ensured at al1costs in this kind of treaty.
Although serious, thiswould not bcirreparable if Italy had a Governmentcapable
of defending ils interesls as the Government of the United States defends the
interests of ihat country: a Government which had the courage to ban an
American film, to arrest ajournalist carrying out spying activities, 10 refuse an
entrv visa to an American oolitician. as the United States Government did 10
Our collc~gue. Scnaiiir Palerm<i. ,l <iii\crnment uhich dnred do ihis ci)~ld. if
neceivdry. Iimii or =\nid Ihc undue inierierçncc in Ourafr~irr by iurcipn ciiirens
and oreanizaiions. Unfortunatelv. we have no such Government. except in Our
i.,rtç.,.and the men uho gorcrn li;ilroda). ha\c show iheniseli,csmore uilling
IO wrve ihan io JI>LU\>m . ore uilling Io acccpi supinely ihanIO ncgoiiaic. niore
uilling Io racrilicc th:in to JefcnJ thc inicrcsis of thc nliion II is ;ilço I>ecïuse
of ou; profound lack of confidence in the present Government that we consider
the Treaiy in question Io be extreinely dangerous and cannot hring ourselves to
approve il.
The rapporteur of the majority considers the Treaty to have now been super-
seded by the bil~ter;ilagreement iniplementing the ERP and by the act ofjoining
the OEEC. Unfortunately he is right as this is, as we have seen, not one of the
customary trade and navigation treaties, but a specifically and subst;intially
~olitical treatv. a link in the chain fetterine Our country 10 North American
;mpcriali~m. \h'rc\pres\ our oh)ectir>nsto sGh a Trcaty quite ehplicitl) and cal1
upon thore collc~guesuho ha\c our ciiuniry's inJcpcnJcnce ai heart to rcjcct 11.
Eugenio Rrale, Rapporteur for the minority. ELETTRONICA SICULA
Document 8
[Includingdraft tex1of lausNo. 385, as inforce on 15 June19491
[Iralian tex1noi reproduced]
OFFICIA LAZETTE THE SENATE - PARLIAMENTARY PROCEEDING CC,XXl
SESSION 7JUNE 1949
DISCUSSION AND ADOPTION OF THE GOVERNMENT BILL FOR THE "RATIFICATION
AND LMPLEMENTATIONOF THE TREATY OF FRIENDSHIP, COMMERCEAND NAVIGATION.
THE PROTOCOL OF SIGNATURE T,E ADDITIONAL PROTOCOL AND THE EXCHANGE
OF NOTES ,ONE IN ROME BETWEEN lTALY AND THE UNITED STATESOF AMERICA ON
2 FEBRUARY 1948" (344).
(Approved by the Chamber of Deputies.)
President: The next item on the order paper is the dehate on the government
Bill,already approved by theChamber of Deputies, Ratificationandimplemenra-
lion of the Treary of Friendship, Commerce anN davigation, rhe Protocol for
Signature, the Additional Protocol and iheexchangeof Notes, done in Rome
bernvenltaly and the UnitedSraresof Americaon 2 February1948.
1cal1on the Secretary to read it.
Merlin Angelina. Secretary, then read document No. 344.
President: The floor is now open.
Since no one wishes to speak, 1 declare the debate closed. 1 cal1 on the
rapporteur for the majority, SenatorParri.
Parri, Rapporteur for the Majority: The text of this Treaty and the report 1
myself wrote do not, 1helieve, require a lengthy additional explanation from me.
It is a straight-forward treaty, but one which is of special relevance not only
hecause of the importance of Our relations with the United States, but also
hecause this is the first maior treatv that Italv has entered into with a leadine
country. It is therefore a kind of s&cimen-treaty, on which others can perhaG
he modelled, in the sense that it puts into practice the general principles ofequal
treatment. rec.~rocitv and the mbst-favouÏed-nation clause. which should he-the
fundamental principles in treaties of this kind which are essentially ofan economic
and commercial nature.
This Treaty takes on particular relevance in view of the particular period
through which ltaly is passing, with a parlous economic and financial situation
that makes it necessarv for her to tem~orarilv waive the normal orinci~leswhich
govern trade and business between countries; this isinly covered in a Protocol
annexed to the Treaty. Contrary to the view expressed bythe rapporteur for the
minority, (weconsider) that this is of greater importance to OurCountry than to
the United States, hecause the specificinterests of individualian businessmen DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 109
are much more comnlex and relevant to the economv of Italv than the interests
that the United ~tates might have in regard 10Our 6ountry.'lt is also a general
treaty, a framework treaty, which does no more than to set out Ourcivil,economic
and commercial relations with the United States. So wecannot exvect it to change
the system for emigration to the United States which willevidenily have to fork
the subject-matter of special negotiations to he handled by the ltalian hlinister
for Foreian Affairs - continuous. assiduous neeotiations. in viewof the imoor-
tance of this prohlem 10 Italy. ~either can il have the character of a particular
commercial agreement. This means that as far as the Ministry of Foreign Affairs
is concerned. it is still necessarv to verv carefullv oursue the question oitlie riaht
of esilibli\hmeni of mcmbcrs of ihc 1;hrral prof~ssionb.~nd'abow al1 ihs riiht
for iheni IOcwrcisc their professiiins Thc Minktry of Foreign Amairsdoes noi
need any recommendations from us: these are problems whh which it is well
acquainted and has been dealing with for a long tirne. However, it wc,uld be
useful for the Senate to adopt recommendations of this kind, urging thal the
possibility of practising the liberal professions, in particula- because thij might
be relevant 10 a certain section of Our ernier-nts - should form the h~s~s of
negoiiarions. ,norder io try io e,tablish a single iyiirm in the legislaiion of the
various Siatzc l'orthe recognition of Italian academic ~ualifications Thia would
prevent, or alleviate, the difficu~ties which ltalian prbfessionals are currently
experiencing, at least in some or quite a few states in the US Confeder;ition. 1
will merely add that, as far as the state of ltalian emigration to the United States
is concerned, although the opportunities at present are not very great, 1believe
that something can be done, especially with regard to opening the doors to
craftsmen wishing to settle in the large cities,and to raising Italy's immigration
quotas.
All told, as 1said in my Report, the Treaty is necessary not only because of
its relevance to the Italian economy, but because it forms a starting point, a legal
basis from which to improve the treatment of fellow ltalians who migrate to the
United States. 1 believe that the Senate will be able to approve the Bill, fully
realizing that il is an extremely useful international instrument for the Italian
economy and for the development of peaceful relations with the United States.
President: Since the Rapporteur for the minority, Sen. Eugenio, is absent, 1
give the floor to the Under-Secretary of State for Foreign Affairs, Mr. Brusasca.
Brusasca,Under-Secretary of Statefor Foreign Affairs: The Government would
merely wish Io underscore some of the points made by the Rapporteur. Sen.
Parri.
This Treaty is a general one, and does no1 therefore deal with any specific
subject-matter, because specificsuhjects are dealt with in particular treaties which
States conclude from time Io time. The essential part of this Treaty is the one
which contains provisions governing establishment, namely, the provisions we
have manaeed to obtain which eive ltalian citizens resident in the ~ ~ ~ ~ ~ ~es
equal treatment with citizensofïhe United States. This is, in a sense, an achieve:
ment of genuine international democracy which enables the nationals of orleState
living in another State to enjoy the rights accorded 10the nationals of that State.
We hope that what has now been aranted to the ltalians in the United States will
be extended to ltalians living in ;very foreign country, and indeed to nationals
of every State in whatever country they live. This would generate that interna-
tional understanding and that mutual trust to which modem democracy aspires
and demands.
President: We will now debate the individual clauses. Clause 1
The Prcsidcni of the Kcpuhlic is ;iuthori~cd io raiify and thc Gu\crnnisnt ti>
fullv2nd wholl) implcnicnt the lollouing ,\grccmcnts concludcd in Komc hetuccn
li;il) and ihc Uniicd States of America on 2 Fehrwry 1918
(a) Treaty of Friendship, Commerce and Navigation;
(b) Protocol of Signature;
(c) Additional Protocol;
(d) Exchange of Notes.
(Adopred.)
Clause 2
This law shall come into force on the day of its publication in the Gorzerta
U'ciale.
(Adopred.) DOCUMENTS ANNEXE0 TO THE COUNTER-MEMORIAL 111
Document 9
(Iroliontex!nor reproduced]
OFFICIALCAZETTE- PARLIAMENTARY PROCEEDING II,LEGISLATURE
BILL FOR THE RATIFICATION AND IMPLEMENTATION OF THE SUPPLEIIENTAL
AGREEMENT OF THE TREATYOF FRltiNDSHIPC OMMERCEAND NAVIGATION BETWEEN
ITALY AND THE Uh'lTED STATES OF AMERICA CONCLUDED IN WASHlh'GTO ON
26 SEPTEMBER 1951.
Lodged with the Ofice of the President on 8.11.1958.
Honourable Colleagues. In recent years, although the ltalian econoniic and
social situation has held down inflation and ensured a solid currency, there has
been a large balance of payments deficit and, what is even more worrying,
unemployment is tending to stay very high.
The main obstacle 10boostingeconomic activity sufficientlyto increaseagricul-
tural and industrial outout and reduce unemolovment is certainlv the shortaae
of domestic capital: loreign capital is therefoie iarmly welcomed:and it is now
unanimously acknowledged that something should be done to attract foreign
capital.
In other words, we should augment the inadequate. though intrinsically high
level of domestic savings, not only by the provision of government Ii~ansor
erants, but bv encouragine inflowsof orivate caoital investment into Italv.
- Hence the keed to taieill the political, legal and economic measurestiiat will
facilitate private investment from abroad: in other words, to create a situation
in which foreign investment is secure and given equal treatment. It is because of
the need to increase domestic investment in view of Our particular post-war
economic situation that ltaly has embarked on a policy to foster the inRow of
private and public capital from abroad.
Inflows of capital from government sources, or public agencies, have ken
promoted through direct negotiations with governments.
We have endeavoured 10encourage the inflow oforivale caoital- a nroblem
u,hich 1sof more spitic relrvanse io ihir report b) ihoroughly o\e;hauling
the old legi\laiiun that had long placed restrictions on Coreignini,rstment. This
far-reachinr innovaiion uas rnacted in Decrce No. 21I OC2 March 1948u,hirh
completelyÏiberalized foreign capital investment in Italy, with a few restrictions.
mainly relating to currency matters. To encourage the inflow of foreign capital
investment, however,it is not enough just to create the appropriate opportunities
and conditions at home, to whicb we referred earlier and which are essentially
based on the political/adminis ststei.iItis also necessary to ensore that
the conditions we establish (exchange rate, investment security, transferability,
etc.) match the ones that the foreign investors want or demand according to the
legislalion and the cusloms of their own countries.112 ELETTRONICA SICULA
And since "foreign investment" today means, above all, investment from the
United States, we deemed it advisable to remove any obstacle to the inflow of
private American capital hy concluding a special agreement with the United
States Government which, ifter painstai<ingnegotiatgns, was eventually signed
in Washington on 26 September 1951.
Beginning early in 1950,the Ministry of Foreign Aiïairs stepped up contacts
with oolitical and financial circles in the United States to fost~ ~~ ~~ ~ ~~~~~- .~
capital into Italy, meeting representatives of officialagencies (the State Depart-
ment, point 4, ECA) and private organizations (the American section of the
international Chamber of commerce).
As a result of these initial contacts, we now have a much clearer idea of what
American investors are looking for, and realio the need for a special treaty
between the two countries.
The needs of American investors may be summarized as follows:
the creation of a favourahle economic, social and political climate in the
country in which they invest:
co-oieration on the part of the country in which the investment is made both
through its investment policy and through the provision of local capital which
American capital should complement, not replace;
protection of the rights of the American companies and individuals in the
companies in which they invest;
possibility of repatriating invested capital and capital gains;
guarantees against discrimination;
guarantees against political risks;
fair and unequivocal tax treatment;
exchange rate guarantees.
What was therefore required was to guarantee the American investors any of
the afore-mentioned conditions not already guaranteed, as far as possible, while
at the same lime ~rotectine ltalian interests.ahove al1bv derendine the currencv
u ~,
and obiaining direct. long-tcm as oppowd Io spwulaiive, producti\e invcrimcnt
In Februaq 1950.the Iialiïn Governmeni, ihrou~h ils Embdcsyin W~shinrton.
therefore oro~osed that neeotiations should beein $th the American Governkent
to conclde an agreementto complement the~reaty of Friendship, Commerce
and Navigation of 2 February 1948,specifically10increase two-waycapital invest-
ment. but naturallv with ~articular reference to American investmeni in Italv.
The United ~1ak.itioi,ernmcni a~veptedthe Ilalian propiidl, and on 9 ~ïrch
1950it suhmitied adraft ireaiy whichuase~ïmined ai d large number uimcetincs
in March and Aoril of that same vear bv the ltalian Goternment denartmen'is
directly concerne'd.
At the conclusion of tbese meetings, on 13June 1950,Italy produced a counter-
draft comprising a preamble and II articles. After receiving CIR approval it was
once again submitted for examination to the American Government.
Despite repeated requests on OurDart. the American resoonse to Ourcounter-
draft &as deiivered toihe Embassy in Washington a year iater, in May 1951.
The memo containing the American comments on it was then forwarded to
the other Ministers concerned. for their counter-oronosals. if anv: with the
agreement of the IidlidnTreasury. the CIK u3s emp;ue;eil IO exami; the memo
At the suggeîtion of the Vepdrtment uf Siale, 3 specidlclduse on social in-ur
ance was al& incorporated inio the draft agreemeni.
The comments on the American counter-proposals drawn up hy the Italian
Government departments concerned were then discussed in Washington where, The sun~lemental Arreement also recoenizes the validitv of the clauses in
contrdcts Consludcdb) private iiiilrn.; UV hayihcounirir..;rclai;n&IO ihc sciilcn~cnt
oi disput:s ihruugh drbiiration.
These clauses cannot be deemed invalid for the purposes of performance in
the territories of the other Contracting Party on the sole ground that the place
indicated for the arbitration procedure lies outside their terntories, or because
one of the arbitrators is a national of a country other than that of the other
Contractinr Partv. It isaareed that hefore anv arhitration decision can heenforced
in ihr. icrriiury ol'ciihcr-stdtcitniust Iirst hc recogni~cd hy r national iuuri.
A spccicil.irriilc of the supplcnicnt;il Agrccmrni Ixy. d6)u.nihr.ss\r.niial pr0i.i-
sions of a convention on social insurance which must he concluded between the
two countries as soon as oossible.
Provision is made for citizens helonging to a social insurance scheme in either
country to be able to count the periods spent in the other country towards the
minimum period required to qualify for social insurance benefits.
This right applies for disahility, retirement and survivorship pensions in which
the period of insurance is of greater relevance for the purposes of nsk coverage.
Furthermore, Article 2 of the Treaty of 2 February 1948 already enshrined the
pnnciple of the equal treatment of citizens of the countries in relation to compul-
sory social insurance benefits and their rights subsequent to industnal accident
or disease and civil liability.
Article 7 of the suo~lemental Aereement nrovides that as far as disahilitv.
retirement and surviv&rship are concérned,benefit rights ;hall be detér:
mined according to the pro rata temporis system, which is the one that is com-
monly used, without prejudice to any provisions to the contrary contained in the
1935 IL0 Treaty, if any, if ever the latter comes into elïect between the two
countries.
If, as is unanimously acknowledged, the Italian economy is gravely hampered
hy the chronic shortage of natural resources to meet the needs of its potential
population and hy the surplus manpower available in terms of the employment
opportunities, and ahove al1 hy the shortage of capital available to meet the
countrv's needs. it would seem fair to conclude that if these eans could he
adequately bridged by using external resources, the economic cycle could he
activated and accelerated, generating production, national income, and rapidly
and rraduallv absorbinr a suhstantial Dercentaee of unemnlovment and im-
prov&g the balance of Gyments. - . .
Attracting private investment from abroad is one of the most important of
these measures
I'hc supplcmcntdl Agrccnisnt signed in W.i.hingi<iniin 26 Ssptcmbcr 1951 is
drrlgned .iho\r. a11io fosi:r ini,estnicnt in Italy usin- pri\ate ~dp1131 i'rurnthe
United States which is the most imnortant. ne..ans even the onlv.cou..rv todav
which has such resources at its disiosal.
This government Bill, that was placed before Parliament in the 2nd legislature,
expired with that legislature. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 115
GOVERNMENT BILL
Clause 1
The President of the Repuhlic is authorized to ratify the supplemental
Agreement to the Treaty of Friendship, Commerce and Navigation between the
Italian Republic and the United States of America of 2 February 1948,coiicluded
in Washington on 26 September 1951.
Clause2
The Agreement shall corne fully in10effect on the date of its entry in10 force
as stipulated in ArtIXlof the Agreement. Document 10
CHAMBE ORFDEPUTIES P,ARLIAMENTA PRROCEEDING LE,GISLATUIR I,E
DEBATES SE, SSIONF 7 OCTOBER 1959,PAGES 10829-10831
[Italian te.rtnot reproduced]
OFFICIA GLAZETTE - PARLIAMENTARY PROCEEDING IILEGISLATURE - DEBATES
ON 7 OCTOBER 1959
DEBATEON THE GOVERNMENT BILL:RATIFICATION AND ENTRY INTO FORCE OF THE
SUPPLEMENTAL AGREEMENT TO THE TREATY OF FRIENDSHI CO,MMERCE AND NAVI-
GATION BETWEEN THE ITALIAN REPUBLIC AND THE UNITED STATES OF AMERICA OF
2 FEBRUARY 1948,CONCLUDED IN WASHINGTON ON 26SEPTEMBER 1951(537).
President:The businesson the order paper is"Debateon rheGovernmentBill:
Rat$carion and entryinIoforce of the SupplementalAgreementtu the Treary O/
Friendship, Commerce an NdavigationbetweentheIralian Republicandthe Unired
Statesof Americaof 2 February1948,concluded inWoshingron on 26 September
10Ç1"
The floor is open for the general debate.
The first speaker is MI. Assennato.
Assennato: Mr. President, you will agree with me that this is a strange Bill,a
re-exhumed Bill previously tabled on 8 Novemher 1958,for the ratification and
entry in10eiTectof an international agreement dated 2 February 1948,which was
eventually concluded in Washington on 26 September 1951
Neither the Government's report nor the report of Mr. Vedovato, who is
usually so diligent, provides any explanation for this mysterious delay. Anexpla-
nation would be in order.
Scelba, Committee Chairman: The measure has only been tahled today for
adoption, having lapsed in previous legislature hecause of the dissolution of
Parliament.
Assennaro: You'll have to do better than that, Mr. Scelba. Since 1951,Parlia-
ment has only been dissolved twice.
1put it to you, Mr. President, that the suhject-matter of this convention is now
out of date. 1believethat there was great reluctance 10place it before Parliament,
because it is an international agreement to attract foreign -apmore specifi-
cally American capital - in10 Italy. This is the substance of the agreement.
Except that after the agreement was drawn up, the Law of 7 February 1956on
Foreign Investment in ltaly was enacted, protecting foreign capital investment in
Italy, givinginvestors the freedom to dispose of their investment and the certainty
of making a profit on il. So there is already a law of the land which naturally
also applies to foreign capital from the United States. This is the reason for the
reluctance. You, Mr. Scelba, were Prime Minister then, and you know that the
reason for the delay had nothing 10do with it heing overlooked or neglected.
The law-maker looks for a rationale, and the rationale in this case explains the
reason for the delay: the enactment of a measure regulating foreign investment
in Italy. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 117
But what was it that drove the Government to dig up this measure again? In
the Minister's report, Mr. Scelba, there are certainthings which do little for Our
nationaldienitv and for the unfettered owration of our constitutional institutions.
It mentionrthé needs of the American investors, and maintains that this conven-
tion would protect them. We shall be seeing in a moment what these needs are.
But first1 have to say that in these articles there are no clues as to the way in
which these needs are supposed to be guaranteed.
The report says this: "The needs of American investors may be sumiiiarized
as follows: the creation of a favourable economic, social and political climate in
the country in which they invest." What does that mean? Who was the simple-
minded or naive person who used the word "creation" here? We could have
understood it better if it had said something about a guarantee. And yet, in the
most brazen, indeed the most heavy-handed and clumsy manner, the Bill speaks
of creating a favourable economic, social and political climate.
Where is this assurance eiven. anvwhere in the text?
Later on it says, "What ;as thcrifore required was to guarantee the Aiiierican
investors . . the afore-mentioned conditions. . ."But none of these coriditions
are listed anvwhere in the tex1of the aareement!
MI. ~resident, we intcnd to get 10th; bottom of this matter, because it has to
do with the very existence of our parliamentary institutions. Because speaking
about "creatine a favourable economic. socialand oolitical climate" necessarilv
relates to Our responsibility as parliamentarians. \Ye construe this to imply thé
"freezing" of a p;irlicular economic, social and political situation that now exists.
And it had better not mean anvthine. diiïerent from that. because there can onlv
be two alternatives, of which the onë 1just mentioned is simply the better of thé
Iwo. The sentence in question can, in fact, be construed to mean a "freezing" of
the srarus quo, or - what is even worse - the creation of a new situation.-
1 will pass over the reference to "guarantees against discrimination" which
could also mean equal treatmenl accorded to other foreign capital. But, Mr.
Scelba, we are bewildered to read in your report what it says about "guarantees
against political risks". Since this document is signed by Giuseppe Pella for the
ltalian Government. in his capacity at the lime as Minister of the Budget. the
only political risk we can imagine that this agreement guarantees against is the
political risk that MI. Pelladoes not become a minister again! Or perhaps againsi
the risk of his political party ruling the country for ever after? What other kind
of political risk could there bel The ltalian Constitution provides for diiïerent
political groupings to take officcin government depending on the results of the
elections. All this talk about guarantees against the political risk of the party
with a relativemajority not being :ableto stay at the political helm of the country
would therefore appear to be no1 only unconstitutional but also nonsense.
Mr. Fnlchi: 1s il truc to say that the original document contains something
that is not written down here, which might shed light on the best wayofconstruing
this sentence? If so, we are no1 dealing with an international agreement for
foreign capital investmcnt, but we are faced with a prohlem that has to do with
the international politics of the activitics of the then Minister of the Interior, Mr.
Scelba, regarding his assurances about "freezing" a given domestic political
situation and a given economic structure as they stood at the moment the
agreement was being ratificd. in order to ofïer adequate guarantees to foreign
investors.
1 beg my colleagues to believe me when 1 Say that there is no malice in my
words; 1am simply rcading what is written in the text of the agreement tabled
for ratification by the House.118 ELETTRONICA SICULA
1rould. ai mort. undrrrtand an asrurince againsi ihe rirks <ii ïlire hrcoking
oui 2nd dcstroying the forcign capilal depositcd in the Bdnk of Ilal). bu1I cannot
for the Iifeof me go along with any assur3nie againsi ihe political rick thai the
Chriiii:in I)emocrati~. I'arty rnighi k ihrou,n oui of the goi,ernmçni of ihii
countr) In this jiatenieni. iherc is soniethinp \$hichdegr~desOurcountry. u,hiih
damages its dignity, because it commits the country to"freezingn the economic,
social and politicalsrarusquo in order to be able to benefit from the aid of foreign
capital (and it remains to be seen whether the country as a whole is going to
benefit, or whether only certain groups or sections of the country do).
Mr. President, what is even more depressing about it is the fact that this
agreement is being bandied around as if it were something to boast about.
Since my suspicions were aroused, 1tried to examine the archives - as 1was
duty-bound to do - to find the original report given by Mr. Vedovato. Usually,
Mr. Vedovaio is verv nunctilious and dilieent. but this tirne he wrieeled out of
it with three words an'da grin, and we abso~"te~~refuse to aeceptilhis kind of
behaviour, and particularly this offensive attitude which oiïends against Our
dirnitv as ~arliamcntarians and humiliates the countrv.
-what isàll the mystery behind this assurance? ~hére in the agreement are al1
these assurances against political risks and against the unfavourable economic
climate to investor countries, and the undertaking to create a new and more
favourable one? 1really would like10know where these things are written down,
in which corner in the document they are tucked away, with what ink they have
ken drafted. 1sthere perhaps some secret schedule?
We cannot acccpt that an official document of the ltalian Republic can say
something which is against the provisions of the Constitution. You are under-
taking a commitrnent which is blatantly against the Constitution, which is a
violation of il- and 1would go so far as to cal1it an act of treachery, because
while vou swear to be faithful 10 the Constitution which euarantees this new
instrument as thecountry's economicstructures progress andihange, you commit
yourselves to a forcign power to permanently crcatc a situation which will hinder
and hall these structural, economic and social changes in Ourcountry.
This is why we will vole against it, Mr. President, and we anxiously await the
Governmeni's reply.
Presideni: After the speech byMr. Assennato, and considering that the rappor-
teur, Mr. Vedovato, is absent, 1 think it is advisable to adjourn the dehate to
another day.
Scelba,Cornmittec chairman: The Committee agrees.
Folchi,Under-Secretary of State for Foreign Affairs: 1wish 10 take the Roor.
Presidenr: You have the Roor.
Folchi, Under-Secretary of State for Foreign AWairs:Mr. President, the Gov-
ernment supports your suggestion. 1will wittingly provide any explanations that
may be needed a1 a future session. But 1would just like to make one remark to
Mr. Assennato: this measure was approved by the Chamber six-and-a-half years
ago, and we look it for granted that after six-and-a-halî years, such difficult
Constitutional issues as these would not have ken raised.
Presideni: The dehate is adjourned. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL
Document 1I
CHAMBER OF DEPUTIES ,ARLIAMENTARP YROCEBDINGS LE, CLSLATUR II,
DEBATES S ESSIONOF 15 DECEMBE R959,PAGES12272-12281
/Ilalion rext no1reproduced]
OFFICIAL GAZmE- PARLIAMENTARP YROCEEDINC II. LEGISLATUR -E IIEBATES
ON 15 DECEMBER 1959
RFSUMPTION O-~T~ ~EBATE OT ~ ~ ~ ~OVERNMEB ~ ~ ~LL: RATIFIC~~~-~NND ENTRY
INTO FORCE OF THE SUPPLEMENTAA LGREEMENT TO THE TREATY OF FRIENDSHIP,
COhlMERCA ENDNAVIGATION BETWEEN THEITALIANREPUBLIC ANDTHEUNITEDSTA7ES
President:The businesson the order paper is: "Re~umption qf the debuteon
the GovernmenrBill: Rarification and enrry inIo jbrce of the Supplemenrul
Agreemenrro the Trearj~of Friendship,Commerce undNavigurionbetiiseenrhe
Itulian Republic und theUnitedStates ofAmericaof2 February1948,concluded
in Washingtonon26 September 1951."
Mr. Giovanni Grilli has the floor.
Grilli. Ciovon~iMr. President, 1 must hegin hy expressing my astonishment
that it is only now that we are king asked to debate a treaty that was concluded
in 1951.It would be most interestine Io know from the Goiernment the reasons
for this long delay. 1am sorry that ~r. Pella is no1here, becausehe is responsihle
for this whollv abnormal delay, and 1am sorry thal it is Mr. Folchi who has io
answer the points 1am about io raise, because-whenthis Treaty was signed, Mr.
Folchi was not even a Member of Parliameni. Under Ariicle 9. this agreement
should no1 have been implementcd until il had heen ratified by both Houses of
Parliament. The article itself statesthat "This aereement will come in10 effect on
ihc day r.iiilisaiioiis chrhanged". And )el ihc dgrcenicnt hi5 iilredd! heen
broughi inici cçfect.2nd eieryihinp rcl;iting io the inipori of I.'niicd Sixle\ capiial
ijgoiuned hy iialrcady This is a !ii~l.iiion of ihc Con~iiiuiion. uhich requircs
ccrtain i)pes of irrai) to he rniified hy P:irliamcni.IIis ;ils0 an infringcmcrii
of the commiimeni undcriakcn uhen ihc agrremeni \ras signcd :\riiclc 3O of ihe
Constitution staies thai
"Boih Housesof Parliament shall authorize the ratification ofinternational
treaties of a political nature, or which provide for arbitration or judicial
settlements, or entail changesin the territory or financial charges.or changes
in the law, by enacting a law to this elïect."
No-one can douhl that the agreement signed in Washington in 1951 is a
political document; one only needsto read the accompanying ministerial report
to see that. The report says that as a result of the contacts leading up Io the
drafting of the agreement, certain demands of Amcrican investors had emerged,
including the need lo create a favourable economic. social and political climate,
and hence, to create a situation guaranteeing protection against political risks.
The same agreement also provided for changes in ltalian legislation regardingthe import of foreign capital. Hence there is a twofold reason for necessarily
submittinz it oromotlv Io Parliament for ratification. However. as 1iust said. the
Governmënt ~ailed'tocomply with the provisions of the constitution and failed
to honour its commitment to implement the agreement only after it had been
ratified by Parliament.
1 will not waste mv breath on this behaviour of the Government which we
know i, accusiomed 10 hreuking ihe Constiiuiion. ar \\.chsc bccn dcnounïing
for a long timc Bui unce again ire arc iorccd Io cdll ihe House'i ;itteniiun 10 ihe
seriousnessof this Government's behaviour and the repercussions it is having on
our institutions. The failure to resoect the countrv's Constituti~n ~ece~~ ~ ~ ~ ~ ~ ~
creates serious upsets in Ournational life, unless those of us who demand respect
for the Constitution grow in strength and know how to impose compliarice with
if
Before I examine ihc Hill, I ~hould Iike ro drau the aiicnimn \>i ~hr.Hous iu
the Ministcr's rcpuri acçompan)ing the r.itilicaiion Hill. II sa), thai ihc idca <IV
concluding this agreement was to guarantee as far as possible the sort of condi-
tions that would be likelv to attract forei-n investment to Italv: and one of these
condiiions ua5 the crcaiion of ;iïa\uurahlc economis. iocial 3nd poliiiral cliniaic.
and the pro\ition of gudranicet ilpinsi poliiical rirks. The docunieni uhich \a!s
iticsc ihinci bc~rs ihe ,irnÿiurc of ihe prercnt Forcien Mini\ier. Mr. Pella. 'The
5;ime Mr clla l ah.o. uih Mr. Qclba ind oihcr ~3binci c~~llc~guc~ u.ndcriook
r soniniiiineni iiiih a forcign gui.crnmcni IO crcate ihc pol~iislilcundiiions \\hich
that government demanded, and to guarantee ils investments in ltaly against
political risks.In other words, what the government to which Mr. Pella belonged
undertook to do was no1what Ourown people wanted or might have demanded,
nor Io respect the provisions of Italian law, but to agree to the demands of
American investors. 1 really do believe that it would he impossible to sink any
lower than that! Precisely at a time when al1the colonial countries are angrily
rising up against foreign domination and when even in the heart of Africa,
hundreds of men are laying down their lives for their countries' independence, a
minister of the ltalian Reouhlic is unhesitatinelv ab-. to state his readiness Io
gt\c ua) IO thc rcqucsts oir.ipit.ilisis froni ~iiher;ounirisr. ign,>ringihc faci thai
iherc Jsmands are nglin,t the Constiiuiion iind ihe dignii) of OurCounir)
As far as the substance of the Bill and the convention is concerned, let me say
al once that it has already been superseded by Law 43 of 7 Fehruary 1956. In
general terms, the provisions of this law are more restrictive than the agreement
which we are being asked to ratify. One might say that the 1951agreement, which
we are supposed to ratify today, was much more generous to foreign capitalists
than the new law. Article 3 (2) of the agreement states that "Income, in the form
of salaries, interest, dividends, commissions, industrial royalties, payments for
technical services, or any other income, or funds to repay loans and for the
deoreciation of fixed investments" and the original canital invested here "can~h~
u ~ ~
freely transferred"; in the currency$ the investor's country.
Section 2 of Law 43 of 7 February 1956places considerable restrictions on the
re~atriation of caoital and ~rofits.howeverl and in some cases the share of orofits
2nd diridcnds uhich ma) bc cxporicJ is noi allu\icd IO ercccd o pcr ccni'of the
î,ipiial in\erieil 'Theiransikr uiciipitdl gain>irom subscqucni disposÿls m.iy noi
exceed the amount of foreign curÏency originally imported, or take place until
two years have elapsed from the date of the investment. 1must confess that these
arenot severerestrictions, but there isno right to freelytransfer the capital which
is sanctioned in the 1951Italo-Amencan agreement.
Further restrictions are provided in other sections of the 1956Law. Section 6
states that before money and loan repayments can be transferred ahroad, authori- DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 121
zation is required from the "URicio Cambi", for which an application is required
to be made through the Bank of ltaly or other institutions with these powers.
Here again, there is a clash with the right to "freely export", enshrinecl in the
1951agreement between the ltalian and American Governments.
Perhaps we should be told whether it is the 1956 law or the 1951agreement
which applies to the transfer of currency to the United States. If we, today, in
1959, ratify the 1951 agreement, will this repeal the 1956 law? The Under-
Secretary will probably reply that the 1956law is still valid. If so, why i:;it tbat
we are ratifying, today, an agreement which partly contradicts, or al least differs
from, a law enacted by Parliament in 195671 am no1 a lawyer, but one might
suspect that the ratification of the 1951 agreement is tantamount to giving
Americans with capital in ltaly the possibility of using the provisions of the 1951
agreement, which difiers from the 1956Act of Parliament.
The Under-Secretary mus1 therefore tell us whether this danger really exists,
because if il does, by ratifying this agreement Parliament would be breaking a
law which it has already enacted, to favour American citizens without having
thoroughly discussed the issue.
An objection of quite another nature could be levelledagainst this agreement
that weare king asked to ratify - an agreement which,as 1have already pointed
out, has been in force sincc 1951without heing sanctioned by Parliament. Many
parts of the agreement clashwith the lawas it stood at the time it wasconcluded.
Before Law 43 of 7 February 1956came into efiect, foreign capital investment
in Italy was governed by Decree 211 of 2 March 1948, whose provisiorisdiffer
substantially from those contained in the agreement. The 1948decree -- signed
by Mr. De Gasperi and Mr. De Nicola, who was the provisional Head of State
at the time - provided that applications for the transfer ahroad of capit;il in the
currency in which it had been investedcould no1be made for at least five years
after the investment had been made. According 10the 1951Agreement, however,
any capital investment, without qualification, can be freely transferred without
any application or prior notice, and the investor can therefore ohtain the equiva-
lent value in dollars.
Article 3 (2), says that investors can
"obtain the dollar equivaleni of and freely transfer income, in the form of
salaries, interest, dividends, commission, royalties, payments for tçchnical
services and any other nature, or the funds to repay loans and provide for
deprcciation of capital assets. and the capital actually invested".
But the 2 March 1948Decree provided othenvise: il said that the followingcould
k transferred abroad: (1) incomr, interest and capital gains from real estate or
loans. and dividends and interest from investrnents in securities and dehentures
purchased and subscribed in Italy, up to one percentage point more than the
annual statutory interest; (2) capital gains from disposals, up to the original
amount of currency imported. and only if the transfer is requested at least two
vears arter the investment was made.
As you see,the agreement gives rise to a number of douhts, quite apart [rom
other contradictions between Our law and the agreement between Mr. Pella and
Mr. Acheson.
And so how could Mr. Pella take the lihertv to strike an aereem-nt with a
iorcign powcr. uhoic ilauws HC<C IIIconird%ito ihc I3n.sof ihc Rcpublic'?And
%ciondly.hoir could ihat Gotcrnrncnt. and ihc onçs ih;it follouîd il.bring thai
arrcemcnl into elTcci?Thcrc nould bc no nccd for [hi, question iihoth llouscs
07 Parliament had enacted a law ratifying the agreement after il had beeii drawn
up. But so far, no authorization or ratification has been forthcoming. This means122 ELETTRONICA SlCULA
that everything that the Government has done since 1951 to implement the
agreements concluded hy Mr. Pella is manifestly illegal and therefore can k
invalidated by anyone.
DepuryPresnlenrTargerri then look the Chair.
Grilli, Giovanni:Now we can see where the servility mania of those who have
ruled us for the past ten years, and still rule us today, has go1 us. 1 have used
the expression "servility mania" advisedly, Mr. Folchi, hecause what Mr. Pella
and Mr. Acheson agreed to in 1951 was not at al1 necessary to protect and
develop the ltalian economv.
~hcie is no doubi thxi the lialian çccinomywab. and siill ii.rhori of capiial.
evcn though lod~) Ihcre 1% X.UUU billion Iirc sitiing in thc hanks uiihoui king
able to find any productive investment for ii, IO meet the country's needs. Y&
we are nota capital-nch country, and eight years ago capital from abroad would
have been very welcome if it had been invested in such a way as 10 meet Our
country's needs. But in the agreements that Parliament is now being asked to
approve, no criteria are given for estahlishing pnorities for American investment
in Italy; importers of capital are placed under no obligations. Indeed, al1 the
provisions governing the import and transfer of capital are manifestly designed
to benefit only the American owners of the capital brought into Iialy and, as 1
already said, they go much further than ltalian law allows. In addition to this, a
substantial share of the imported capital has not been used to strenrthen the
1ial13ncconom). bu1raihcr io rtrengihcn ihc hold of ihc main nionopol;L~orpur;i-
iiunb in giurCountr). Aniither portidn hiis bccn uscd to increJsc our in\esimcnt
in infrastructure, or in ventures which are no1directly productive, therehv heiaht-
ening the distortions in Our investments and in the-whole of Our producÏion
policy - that distortion which has been created by the general action of the
various governments that have taken turns in power.
It is no1 imorohahle that some of the imoorted ca~ital has been used to boost
the economic'fortunes of some of the frienhs of the& governments. Unless 1am
mistaken, Mr. Folchi, amona the importers of capitals into ltaly is the Hilton
Comoanv: the one which is orenarini to build a hotel on Monte ~ano with the
1mmbhil;are Company, of kh&h q;ite a few friends of the present and past
Governments are memhers, and prohably the American chemicals Company.
Souibb. the Chairman of whose Italian suhsidiarv is - Io and behold! - the
parli~mentarian. Mr [\;in 41;iiico Lombardo. uho \vas a mcmhsr (if>c\crdl
prc\ioJ> G~~icrnmrnis.Then the Italian Undcruood Conip.in). \#hichuc ar>ume
has imported capital under the protection of this agreement, is chaired by a man
who is a Mend of the Government, Mr. Malavasi, ihe former Chairman of
ENAL. As you can see, in al1these cases, imported capital has been usedto help
people who are friends of the Government, but not the economy of OurCountry.
For al1these reasons, we believe that the House must not endorse what the
Government has done by voting to approve and ratify the agreement which has
ken submitted to us. afier such a lo-rdelav. If the House wanis the Constitution.
iijprcrog~ii\cs and currcnt lcgislsiion io he honoured. and iiitu.3nis IO proicct
ils 0u.n digniiy.11must neces,arily rcJîc1ihc Goicrnmcnt's requcbi Io raiif). the
agreement which has been submitted to it for discussion, after more than seven
years since il was concluded.
It should also be noted that the retarded ratification of the agreement does not
legitimate any of the acis performed in implementation of the agreement, leaving
open the possibility of asking them to he revoked at any lime. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 123
This, Mr. Folchi, serves to show the thoughtless way - to put it euphemisti-
cally- the Government signed the agreement which was equally thoughtlessly
accepted by the Cabinets which followed (Applause fromihe Lefl).
President: Since no one else has asked for the floor, the general dehats is now
adjourned.
Mr. Vedovato has the floor.
Vedovato, Rapporteur: Mr. President, honourahle colleagues, as the President
of the House has told you, when the debate on this Bill began 1was ahroad on
official business.
On the resumption of the debate, Mr. Giovanni Grilli added new material to
what his honourable friend, Mr. Assennato, had raised when the dehate on this
Bill began.
Mr. Grilli has committed one factual error and one legal error. He intends to
depict MI. Pella as the author of the agreement; his criticisms, likeMI. Assen-
nato's. do not refer so much to the actual azreement itself. but rather to the
report :iccumpan)ing il This is ilic Factualcrror The report mas dralicd b) hlr.
1;linf;ini.uho u;ii TheForeign Ministsr ai ihc timc But I di>no1 bcl~c!cthlit in
a parliamentary debate one ian criticize the report and not the actual text of the
agreement. We willsee why, shortly. As far as the legal error is concerned, 1trust
that MI. Grilli will permit me Io say that matters did not go quite a:; he has
presented them to the House. There are various ways of ratifying international
agreements. There is the simple ratification procedure, when it is acknowledged
that the agreement is in full compliance with the Constitution, and there is the
implementation procedure - which is the one we are dealing with today. In
other words, by approving the Billbefore the House today, authorization is given
to the Head of State to ratify it, and the international agreement then becomes
fully effective domestically.
The effect is practical: when the instrument becomes law after going through
the usual procedures, it hecomes ipso/acto effective.Another effect is that until
the ratification of the Billis approved, the international instrument to which it
refers has no oractical value. Soit is not true at all. as Mr. Grilli maintains. that
this agreement has already heen brought inIo elTeciand that the ltalian Go;ern-
ment has performed acts in implementation of it, in defiance of the Constitution.
And then, Mr. Grilli, you~asked whether foreign capital in ltaly is to be
governed hy the Fehruary 1956 Law, or hy the agreement which we are about
to ratify. There is no shadow of doubt: the legal validity of this instrument
supersedes the earlier law, wherever they differ. In other words, where this later
law contains provisions which clash with the earlier law, it is the later law which
takes precedence, not the earlier one.
Having clarified that point, and having established that the ltalian Govern-
ment has no1violated the Constitution, 1willturn to MI. Grilli's other ohjections
with regard to the way foreign capital investment in ltaly is governed, and the
income from this investment is transferred.
The fact that Mr. Grilli is not - if 1 may put it this way - as adequately
informed as hefits a person who wishes to express such heavy-handed criticisms
as he, can be deduced from the way he quoted the Bill we are to vote on, the
1956Law, and the 1948Law, at one and the same lime and without distinction.
If there is a rationale behind the law. and if we reallv do want to know enactlv
which legalprovisions govern investmeit and the subs&uent export of the incorné
accruing to it, we have to see whether and where the 1956 law introduced
innovations to the provisions of the 1948 law, and whether and where the Bill124 ELETTRONICA SICULA
before us introduces innovations to the provisions of hoth the 1956Law and the
.9.."1..u>
Itha, hccnsl3imrJ ihdt ihc agrccmcnt ue .ire propo.ing 1%)raiif) r.ni.iil\\rrii,uj
Icgal \tolaiions. hlorc spcciii;all!.. \Ir Grill1rcierred io Artislc 3 (2). uhich hc
read out twice during his speech.
At this point, 1 am very tempted to repeat the famous saying, "Cive me a
sentence out of context, and 1can send you to the gallows".
If Mr. Grilli, who has read the agreement so carefully, had not ignored certain
things, he would have seen that immediately after Article 3, there is an Article
4, which states this:
"Notwithstanding the provisions of Article 3 of this agreement, hoth
contracting parties retain the right, in periods of currency diiiiculties, to
apply (a) exchange restrictions to the extent needed to ensure the availability
of foreign exchange required for the payment of goods and services essential
to the health and welfare of the people; (b) exchange restrictions to the
extent needed to prevent the monetary reserves from falling very low, or to
slightly increase very low monetary reserves; and (c) particular exchange
restrictions which are specificallyauthorized or requested bythe International
Monetary Fund."
This means that notwithstanding the principle of full freedom set out in the
preamble to the international instrument, there is a range of restrictions which
are specificallyset out in Article 4 which, in periods of currency difficulties,will
certainlv helo Io orotect the ooeration that has to he oerfomed. And if. wi~. al1
these limitat;ons,'there should'emerge any clash with Section2 of the lnvestment
Law of 7 Fehruary 1956, it is ohvious that we can find out the general current
legal situation governing foreign investment and the transfer ahroad of income
from ltaly by harmonizing the provisions of the 1948Law and the 1956Law and
the oresent Bill.
With rcgarrl io ionic of the ciimnicnis niad<ahoui the ,ircngihening <>fccrialn
11.iI1.inonipa~~~c .b>.Irc31iliof fore~gn~apiidl.l haxc :II~hIcinre nic oi,\mcric:tn
investment' in Italy, and - Io and-behold! - the main examples are those in
which American capital has been invested in companies helonging to the State-
owned IR1 Croup.
With regard to agreements for manufacturing under licence, the type which
the Left is so keen on raising, the example 1 have is the agreement drawn up
hetween an American corooration and the Florence-based "Nuovo Pienone"
Company which, as you ali know, belongs to the State-owned ENI Group. But
avart from these considerations, I would like to emvhasize the fact that des~ite
the six years that have passed since it was drawn this agreement is stili as
topical as ever, not only because of what 1havejust said but also in the light of
two other aspects of the agreement. And it is very astonishing that neither Mr.
Grilli nor Mr. Assennato mentioned these two points. 1 am referring to the
sections dealing with social insurance and international disputes.
As far as social insurance is concerned, the agreement lays down principles
regarding the conclusion of a convention under which social insurance rights
accrue in hoth countries. 1helieve that this is an extremely important principle
and one that is particularly îavourable towards the working classes in hoth
countries.
Yet - inexplicahly - no comment was made on this clause.
Grilli, Giovunni:11was the least you could ask for! DOCUMEKTS ANNEXED TO THE COUNTER-MEMORIAL 125
I;ib>i<rri~. apporteur I iould ansuer thni wiih a uell-knoiin Englibhuying:
l'ou iiri ihro\iing ihe bab) out uiih ihc b~ih-wùt:r .4ppl~ru.~t~ti~r~ h1c(',~nrro-
nii<rt>luriny Ws arc FJceJ \iiih lui> vcry li\el) and spiriicJ childrin here ju~.i~l
insurancc and ihc ~ciilcmcnrùf internari~ndl diapursr
As iJr 3r SOCI:~~ in\ur3n;: IS ciin;crncJ. ihi? is J poirli»i Jt. ci~nrruhcnJi ,6)
orotect the interests of our migrants
-
Anoihcr p3rl of the üprccni-.niinakcs pro\i,i«n io extend ihc claurc goi,crning
ihc scirlcmcni of di,putis b) :irhitraiion Thctc pru\t.ions maki it pùrsiblc IO
obviair ubic~.ii,,nsun the rirounds of nullit, io ihr diirinicni uithe pariieb .ind
makes it possible to streamline the settlement of economic and trade disputes,
which boosts thedevelopment of trade between the twocountries, albeit indirectly.
In his speech on 7 October, Mr. Assennato asked why il was that the 1951
agreement was submitted for ratification at the end of 1959, when it had been
overtaken in February 1956by the famous law on Foreigninvestment in Italy.
He sought the reasons for tbis inexplicable delay and made a number of remarks
in regard to them. All his arguments were already anticipated in the Minister's
report accompanying the instrument. Mr. Assennato, like Mr. Grilli a few mo-
ments ago, firstly criticized some of the remarks in the Minister's report which
sum up the needs of American investors: the creation of a favourable economic,
social and political climate, and the guarantee against political risks. He then
pointed out that these things were not mentioned in the agreement, and asked
whether they might be contained in some secret accord to freeze the present
economic, social and political situation. Mr. Assennato insinuated, without actu-
all. .-vine so in so manv words. that this would ex~lain whv the aereement was
~III~ re-wbmlitcd h>rp:irli;inic.ntlir!:ipprov~l.fifier%ivcii!car>. cvciithnugh ihc
non-5cir:i pari had bsen sup:rrcilcd iiiihc mcaniinic
I'hr (i3i:rnmcnt iiin 3 hsitcr po\ition ih:in 1ani iu addrcss ihi qucsiion 01'
whether there is ~~secret international instrument. camou.laeed und& the euise
of an instrument submitted to Parliament. But it is evident-that this cllarge of
unconstitutionality and secrecy levelledby Messrs. Assennato and Grilli relate to
certain expressions in the report on which they have pounced claiming (and the
people who write reports Io accompany legal instruments had better watch out!)
that these remarks either reveal the existence of a secret agreement against a
democratic alternation of parties in power, or a guarantee that it will not occur
and claim that, being part of an officialdocument, this relates to the responsibility
of members of Parliament.
Now, let mejust say - for the sake of clarity and also Io dispel any suspicions,
doubts or uncertainties that have been expressed - that the ministerial report,
which was long-winded and susceptible to biased and one-sided interprctations,
was drafted seven years ago, and as usually happens when a Bill is tabled again
after the dissolution of Parliament, the only parts that have been changed are
the ones that refer to the 1956law. But when it was originally written, the part
of the report chat Mr. Assennato criticized does nothing more than confirm the
intenti~~ not to~ ~a~ee the democratic svstem enshrined in the Constitution of
2
the Republic, which guarantees the preservation of an economic, social and
political climate that is favourable 10 foreirn investment precisely by enabling -
ihe people to freely choose the men thcy wait to run the country's affairs.
Grilli, Giovanni: Today, people are rebelling against certain guarantees even in
Africa.
Vendovato, Rapporteur: You are twisting the issues. One of the bases for
developing the Italian economy according 10 the Vanoni model is to attract
foreign investment to Italy, but it is obvious that no such thing exists as a set of126 ELETTRONICA S~CULA
rules that will automtically channel foreign investment into Italy; foreign invest-
ment only goes to the countries where there are fewer prohlems. If you prefer to
invest capital in Russia, go and invest there; but obviously, if Russia does not
guarantee you security, including political security, businessmen will not go and
put their capital there.
The parts of the Minister'sreport that Messrs. Assennato and Grilli particularly
attacked related to certain soecific demands of the American investors - not
spcc~ticgo\crnment tijsuriincdsih;ii iiuould cruic a clim3tc th.iiUJS fa\i,ur.iblc
to ihrir ini,csimcni (hou co~ld such xn ;issurance bc givcnll, ur tissurdnce of
"iccurii\ ae:iin>t rioliiic~l ri\ks" ba sort of ininiohilim ihat :inv Jemuzrniic
government such-as Italy's preseni Government is, must necessarfly shun. The
fact is that the comments that have been made, simply for the sake of argument,
necessarily referred to certain expressionstaken from the report, placing a biased
and oartisan interoretation on them. But as far as the actual aereement itself is
concerncd. there u.crc ahsoluicl) no grounds for ruch L.aninicnis.p;iril) hec~urc
in both .pecihes on 11.Iiiile or nothing u:ir s31Jrlhilui llic rlprremcni (now \Ir
Gnlli h.5 \oolcn ah>ut il.:ind uç ha\c dcnion.trrlicd thnt ihc chdree of unci>n\ti-
tutionality'does not hold water). How could it have been otherwise? Nothing
could be said about the agreement because the first part of il, which is certainly
the most important, refers to the free transferof capital and income hy natural
and cornorate oersons from the two contractine States. and their freedom to
nldn3ge'ihc coiiipanir\ u,hich ihe>cn~iluriilor le&l pcrsoni e\i;iblish or procurc
Itcontains a >ri of pro\isii>n. uhich art Je.igncd io I;>hicriorcign inve5tmcni in
Italy, and esoecially American investment. At present, desoite the long oeriod of
lime that ha; elaosed since the su..lemental akeemcnt w& concluded~ihev have
nom heconic CUI()rele\;int in ihr Iighi of boli ihc Iibcrdli~ingproi,iri<ins't>li'hs
Lawoi7 Fcbruxr) 1956yotcrning iorclgn in\c<inieni in ltaly (of iihich ni~ch
ha.; becn ,aidi and oi the rnirs inio brcc of ihc Tre~i, af Komr ii~rthe csiah-
lishment of the European ~conomic Community.
1was saying earlier, and 1will say il again, that one of the pillars of the ten-
year model isthe policy to foster the expansion of loans and foreign investment
in Italy. Let us seewhat the situation was before the entry into force of the 1956
ldw, and then sec what happened after that date. Before the Foreign Investment
Law of 7 Fehruary 1956, foreign investment had been 6 million dollars in 1951,
15.1million dollars in 1952, 16.6 million dollars in 1953, 52.6 million dollars in
1954, 70.2 million dollars in 1955, and 99.2 million dollars in 1956, making a
grand total of 259.9 million dollars. 1957was an experimental period for the new
Italian foreign investment law and the results were generally positive, despite the
unfavourable state of the international capital market as a result of the shortage
of funds and the anti-inflationdry measures, which led the British to raise the
bank rate in October last year. This trend was partly reversed in 1958but the
repercussions were strongly felt.
Since the laneuaee of fieures is the one we orefer. let me sav that foreien
invciinient rose ironi 89.7 million doIlsr, in 1957io 1729 niillion J<)llarsin I9jh.
u,hilcin ihç lirsi cipht ini~nthsof the currcnt \cJr thr) had alrcdd) rached 126 3
million dollars, most of whichcame from thedollar aiea. Indeed. soecial mention
should be made of private investment from the United States whjch, at the end
of 1956,totalled about 206 million dollars.
This kind of investment, which in previous years had been restricted to the oil
industrv. is now soreddine to other narticularlv vital sectors of the Italian econ-
omy. ~ierican cornPani; have been stimulatédto negotiate technical and pro-
duction agreements with companies in other European countries and with
Australia, as well as with Japanese and New Zealand companies, in order to DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 127
manufacture more cheaply abroad the things which would cost so much more IO
make in the United States that they could not compete with the international
market prices. This stimulus has caincided (as we hinted earlier) with the steps
taken bv the countries of the Euronean EconomicCommunitv to attract industrial
investment in the Common ~a;ket, and with the policics'adopted by a &eat
many American companies 10set iipmanufacturing basesin the Common Market
to carve out a placefor themselvci inside the citaael of the Common Market.
About 3,000 American companies have been placing industrial investment
abroad for a long time, worth some 30 billion dollars. The value of production
from these American companies abroad in 1958 was about 32 billion dollars,
which was twice the value of America'salre--eaue exoorts.
According Io the American press, and bearing in'mind their needs, and the
findingsof a well-knownAmerican economic research publishing group. in 1959,
American industrialcornorations intended to increasetheir foreienmanufacturinp.
investments by 5 per cent over 1958to 2.1 billion dollars, an; about the samë
again in 1960.These figuresare supplied by companies that already account for
75 per cent of United States industrial investment ahroad. And unlike what
happened in the pas1 - and this is the essential poin- American companies
are reportedly intending to invest more in Europe than in Canada or Latin
America in 1959and 1960.Now, according to these surveys and indications, we
have reason to believe that a substantial share of this investment has been. is
king. dnd uill he channclled into 11x1)This is a source of greai sstirl'astion IO
e\er)one uho is reall) ~.onccrncdah<>utthe ccunemic de\clopment ofOurCilun-
iry.There :ire basicall) ihree iurnir thlii Amcriclin teihnological and produi.tiiin
vëntures take in ltalv: settine uo an industrial olant in ldv under. the direct
control of the ~merican parez cornPanies;joint-knture agreémentswith ltalian
companies (and 1iust quoted a fewactual examples); and granting manulacturina
T~lringaIIthis inio ücsouni. linyons cJn sec the grîat rcle\ance oithe prcibleni
of foreigii in\esimcni. and United Si~tcsini,eiiment in pïriicul;tr. to the dc\clup.
ment of the 113113C ~CoBUm)T . he inlltiu of forcian in\cstment. r>3rticul3rlyliom
the United States, bringing with it new financiarstrength which it places-at the
disposal of ltalian industry, is also increasing the supply of capital available to
the remainingcompanies. And it ispreciselyin thisconnection that our diplomatic
reoresentativesabroad have been eivenstrict instructions from the ltalian Foreien
Minisiry tu do uhi thcy can IO .iitrait rorcignin\,crimeninio lu~ybye\pl.iining
thc curreni ,tatutor) iilcilitie\a\aib~blc.including the 1956LAU,uhish h4i.cbrvn
shown 10offer the best guarantees to foreign investors.
This shows how topical the supplemental agreement under discussion reallyis.
To complete the picture, let me add that Article 4 of the agreement contains
special provisions for the application of restrictions to the transfer of capital
between the Iwocountries in times of currency difficultieswhich might obviously
anse, in order to ensure that they have the liquidiiy they need to pay for the
goods and servicesthat are essential to their well-being.
Let me finish by recalling something that Mr. Asscnnato said on 7 October:
"Since my suspicions were aroused, 1tried to examine the archives - as
1wasduty-bound to do - to find the original report given by Mr. Vedovato.
Usually, Mr. Vedovato is very punctilious and diligent, but this lime he
wriggled out of it with three words and a grin."
It may be that 1 still have that grin even today, but 1 mus1 point out to Mr.
Assennato, who evidently did not read my written report very carefully, that 1
added a further 33 words orally to the three words of my written report. 1 do hope that these explanations and this documentation eliminate al1 the
douhts and al1the perplexities, but at least to induce that section (of the House)
(poinring ta the Lefl) Io think again more carefully about their attitude to a
measure which, according to the opinion of the Committee, will have beneficial
effects on the Italian economy. 1therefore move that the House adopt this Bill,
with a majority that 1 really do hope will be ovenvhelmingly in favour (lorrd
cheersfrom the Centre).
President: 1give the floor to the Under-Secretary of State for Foreign Affairs.
Forchi,Under-Secretary of State for Foreign Affairs: Mr. President, honourable
colleagues,the customary vote ofthanks 10the Rapporteur must be much warmer
on m; oart than usual. because MI. Vedovato has eiven a thoroueh account.
answéringthe commentsmade during the debate on 7Oclober by MI.-~ssennato;
and taken up again, with a few remarks of his own, by MI. Grilli.
The representative of the Government only needs to hriefly sum up the arau-
ments raised. recalline in oarticular that the criticisms levelied aeainst the Ëill
relate io ihree dikrïnt .ispccii oi il. tirsily, Mr. Assenniiio spokc i)f ihc m)stcr)
of ihc Jela) 11idhling ihis Bill. Ihcri f<illouaJei;iilcddissursiiin on ihc~ubjeci-
matter of the convention which, according to MI. Assennato, would appear to
he superseded by the 5 February 1956Law. Lastly, Mr. Grilli brought in a side-
issue to the treaty in question.
As far as the delay in tabling the Bill is concerned, 1 will no1 inflict on the
House a list of al1the dates on which the measure went throueh thu oioel..e. 1
iiillmercl) ~dd ILuh'il Mr. Vedo\<ttohiiijust e~plsineù uiih such diligence thai
ihç mc;isurc ud.: properl) approicd hy the Chamher of Depuiicl.on 12 Februar)
1953.hut rhai hczauic of the di\~oluiion CIP ^iirli3nien11~.ouldno1 bc do~rovcd
by the Senate. The climate was different then, and the House raised no objéctions
Io il (Protesrs fromMr. Grilli). 1could easily quote, Mr. Grilli, from the proceed-
ings of the debate. That would show you that no particular remarks were made
about the measure before its ratification, despite the fact that the treaty had only
to he signed shortly before that and the financial situation was such that the
criticisms raised in this debate weremuch more in order then than they are today.
The measure was taken up again on 19October 1953. But although il was set
down on the order paper il was not debated and therefore lapsed whenParliament
was dissolved. When it was taken up for the third time it was dehated in the
House. Considerinr the nrocedure it has followed. 1 do not consider that the
ircqucni complliints abuut ihe shortcomings or incficicni) of ihc I:orcign Mitiir-
iry ;irejustified The Minisir). <inihir occdiion as .il\is).s. h:<sduniiidiity \iiih
praiseworthy diligence.
With regard 10 the question as 10 whether or not the agreement has heen
superseded, 1wholly endorse what has already been said hy Mr. Vedovato. First
of all, this agreement does not refer solely to capital investment in Italy, but also
the submission to arbitration of certain disputes, and the discipline governing
certain insurance matters. It is in the interest of everyone that these last two
issues are properly regulated. Parliament should therefore take heed of the old
Chinese proverb (Chinese proverbs are very fashionable nowadays) which Mr.
Vedovato mentioned.
Mr. Grilli expressed his concern that the measure we are about to vote on will
offer better lems to foreign investors than the terms provided under the 1956
law. But he forgot to say that in some respects the agreement is more restrictive
than the 1956 Law. For example, the 1956 Law provides that capital may be
freely transferred even if the original investor has disposed of al1or part of the
assets acquired in ltaly to another foreigner. This provision did not appear in DOCUMENTS ANNEXBD TO THE COUNTER-MEMORIAL 129
the agreement. Furthemore, the 1956 Law allows investors to transfer capital
abroad in a currency other than the currency in which it was originally imported
(a provision of considerable relevance and interest), whereas the treaty requires
the same currency to be used. In the present international monetary and currency
situation, thisis of great relevance. Lastly, Article 4 of the agreement confers the
right Io restrict capital transfers under certain conditions. whereas the Lawmakes
no mention of any such limitations.
Mr. Grilli alluded to substantial available funds in the banks, but hc might
have recalled, with equal relevance, the substantial funds Italy has available
abroad today. If there were any political problem here, it would have to be the
oroblem of mobilizina these huae available reservesboth domesticallv and ;ibroad.
But this is no1 the &ce to deal with problems of this kind.
1will no1 dwell on the second and third parts of the agreement. because they
do not present problems.
But 1 would like 10 go back to the question raised earlier, to which Mr.
Assennato referred: namely, the question of the Minister's report which has been
put in the dock. What did il actually say? It spoke of the need to create a
favourable economic, social and political climate in the countries in which invest-
ment is made. Generally speaking, al1 those who invest capital abroad wish to
do so in a country which offers certain guarantees of security, equilibrium and
interna1 peace. No one would doubt that, 1imagine. And for the benefit of Mr.
Grilli, 1 should like Io re-state, in the words of one of his distinguished Party
comrades, the fact that these investments are a necessity for the revitalizalion of
the ltalian economy, and this was particularly true at the lime the agreement was
signed. Unless 1 an1 mistaken, way back in 1947, Mr. Pesenti, the Minister of
Finance at the time, gave a widely acclaimed lecture in English in Rome, in
particularly solemn surroundings, in which he argued the thesis that the recon-
struction of ltaly needed the intervention of foreign capital. And as Minister of
Finance, with the responsibility of laying down the policies Ourcountry had to
follow, it was logical for him to concern himselfwith this matter, just as we have
since concerned ourselves with it, through a number of instruments. All of us
can understand that when this capitalcame to Italy it needed to find a favourable
climale. In al1sincerity, this expression, which weagree was unfortunate and to
which Mr. Fanfani put his signature jus1 as Mr. Pella had done (because the
Fanfani report merely repeated the Pella report, word for word), cannot possibly
be constmed in the way it has been construed, but was intended to mean
somethina else which is perfectlv comprehensible.
~oreo;er, as far as théfavourable conditions for the free repatriation ofcapital
which Mr. Grilli is complaining about are concerned, 1 hardly need cite the
experience and the authoÏity of economists and financiers IO recall the fact that
the easier it is to recover investedcapital, the longer the investment will last. In
other words, the greater the certainty that the investorcan repatriate his capital
at any time, the longer that capital will remain invested in a country.
1wanted 10 add these comments to facilitate the adoption of the measure by
the House, and also because 1an1 duty-bound to say that - contrary fo what
Mr. Assennato said - there are no secret agreements of any kind whatsoever.
But 1 have to agree with him when hc said that the unfortunate expression in
that report did not refer to any agreement or provision in the treaty. The
Government, through me. hereby declares that nothing has been agreed between
it and the United States apart from what is enshrined in this Treaty. II can
therefore be adopted, without difficulty, by the House, as far as this matter is
concerned.130 ELETTRONICA SICULA
The agreement has already heen ratified by the United States: but 1wish to
tell Mr. Grilli and the House. in confirmation of what the Rapporteur has jiist
said, that this agreement will not come into for-e and could not possibly come
into force - until the ratification is exchanged hetween the parties signifying,
according to the sound noms of international law, that the contracting parties
are in agreement, and hence that the provisions of that agreement can he put
into practice.
Similar agreements have already heen made hy the United States with West
Germany, the Netherlands, and many countries in Latin America, and most
recently withFrance. 1therefore believe,as the Rapporteur said in hisconclusions,
that in al1conscience 1 may move that the House adopt the ratification of the
agreement (Applnusefrom the Centre).
Presideni:Wewill now examine the articles. Pleaseread the clauses (whichare
identical in both the Committee's and the Government's texts). Since no
amendments have heen tabled, 1put it to the vote.
Frariro, Secretary, reading:
Clause1
The ~residënt of the Republic is authorized to ratify the Supplemental
Agreement to the Treaty of Friendship, Commerce and Navigation hetween the
ltalian Republic and the United States of America of2 Februry 1948,concluded
in Washington on 26 Septemher 1951.
(Adopled.)
Clause 2
The Agreement shall come fully in10effect on the date of its entry in10 force
as stipulated in Articl1X of the Agreement.
(Adopted.)
Presideni:The Bill willbe voted through in a secret ballot al another session. DOCUMEILTS ANNEXED TO THE COUNTER-MEMORIAL
Document12
SENAT EF THlREPUBLIC S,ESSIONSF THECOMMITTEE 2S,MAY1960,PAGE22
[Italian text norreproducedl
The Foreign AffairsCommittee. during the reporting stage, suhsequently begins
the examination of the bill: "Ratification and execution of the Agreementsupple-
menting theTreaty of Fnendship, Commerce and Navigation hetweenthe Italian
Republic and the United States of Amenca of 2 Fehruary 1948, signed in
Washington on 26 September 1951" (931), already passed by the Chamber of
Deputies. After a few remarks on the legisiterof the provision on the part
of Senators Bosco and Berti, to whom Under-Secreiary Russo replies, the Com-
mittee confers upon the Rapporteur, Senator Jannuzzi, the mandate to submit
the report to the Assembly. ELETTRONICASICULA
Document 13
SENATE OFTHEREPUBLIC,PARLIAMEVTARP YROCEEOING SE,GISLATUR 1E111958-
1960,BILLS AND REPORTS D,OCUMENN TO. 931-A, SENT TO THE OFFICE OF THE
PRESIDENT8, JULY 1960,PAGES1-3
[Iralion rexnorreproduced]
RATIFICATION ANDEXECUTION OFTHEAGREEMENS TUPPLBMENTINTG HE TREATO YF
FRIENDSHIP C,OMMERCA ENDNAVIGATION BETWEEN THIE TALIANREPUBLIC AND
lHE UNITEDSTATFS OFAMERICAOF2 FEBRUARY 1948.SIGNEUIN WASHINGTON ON
26 SEPTEMBE1 R951
Ilonourable kn3tors. The Agreement Supplemcniing ihc Tr~~tyof Friend\hip.
Commrrce and Navigation bciwecn ihc Iialian Rcpuhl~cand ihc United Siaie>
of Amrrica of? Fcbruar) I'>?R.iigntd on ?hSepiembcr 1951.h3s ihc folli>u.inè
content:
Citizens and juridical persons of each of the Contracting States will bet
subiect - in the ierritorv of the other coun-rvto arbiirarv or discriminatorv
measuresaimed at impeding managementor control of enterprisesfor which they
bave receivedthe required licenseto purchase or estahlish, or any measureaimed
at ohstructine the exercise of~ ~ ~ ~ ~ ~r riehor intere~ ~ ~ ~at~ve Io such
u ~-~ ~ ~~-
enterprises or to ihose in which they have participated wiih thcir capital.
They can employ. irrespective of the professional requirements deiermined by
the legislation of the place where theyoperate. technical and administrative
experts for the purpose of carrying out -in such enierprises -book-keeping
inspections, technical surveys, and-drafting reports with regard to planOÏng
operating their enterprises.
The Contracting States undertake to grant the most-favoured treatment for
the transferability of capital and, inases,to allow the free transfer:
(a) of income of any nature (including, therefore, salaries, interests.dividends,
commissions, industrial patent rights, payments forchnical servicesand funds
for amortization of loans and depreciition of direct investmenis;
(bl of funds and capital, by obtaiuing the currency of one's own country for
thesetransfers.
However, in periods of monetary difficulties, exchange restrictions can be
applied for the purpose of:
(a] guaranteeing the availability of foreign currency for the payment of goods
and servicesesseniial ta ihe health and well-being of one's own population;
(b) preventing the drop ofmonetary reservesto a very low level or producing
a moderate increasein very low monetary rcserves;
(c) complying with ihe restrictionsauthorized or requestedhy the Iniernational
Monetary Fund (this rule of course is abandoncd after the abolition of this
Fund). Tax. customs and tariii' allowances concerning transport, established by
the ltalian legislation for the industrialization of Southern Iialy, for the develop-
ment of the Apuana industrial area and of the Verona, Gorizia, Trieste, Leghorn,
Marghera and Bolzano areas "and other allowances set forth by the ltalian DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 133
legislalion" currently in force or which can be enforced "in the future" will be
applied to the investments made by the United States in Italy.
The clauses containina the settlement of controversies throueh arhitration.
cntcred into in ihc contrnct, bciwecniiti7cns oi h<iihStates. willno; bcconridercd
invalid mrrrl) oii the bdsis of rlic fïci thlit ihe placc choscn fdr arbiir.ition is
outsidc tlic icrriiorv OCihr iontracting States or the arbiters arc not nÿti<nnalsof
these States
Should the same conditions be present, arhitration awards legallyrendered will
no1 be considered inialid or non-enforceable either, subject to the rules on
judgments giving a foreign sentence legal effect.
The Agreement recognizes the principle of allowing counting of periods of
coverage that have accrued in favour of the citizens of each ContractingCountry
in ils own ferritory when these citizens are working in the territory of the other
country, with regard to old-age and survivor's insurance,except for any overlap
or duplication, subject to the faculty - for whom it may concern - to waive
this rule.
When the 1935Convention on the maintenance of pension rights of emigrants
comesinto force, itsdispositions willhave precedence vis-à-visthe rulescontained
in this Agreement.
All matters arising from this Agreement supplementing the Treaty willbe dealt
with on a friendlv basis and with aoor.. .ate consultations.
Thc agreeemcni willcome inio illrcc oiithe da) of the exchange ufraiilir.srions
The clclusion ofïn) discriminatory trrïtment or uf arhitrar! mrasures cnusing
harm Io citizens. iuridical persons or ltalian or American associations oneratinë
in the territory uîihe othe~c~untr~,thc opportunit) or Creecontrol of entrrpri\e<
the mosi-Ca\,ourrd-ireaiment gr~nred t<itrxnsferability of cspiial. rax rclief,etc..
are rules which, appropriately supplementing those rules contained in the Treaty
of Friendshio of 26Seotemher 1951.helo the economv. es~ecia.lvt.e Italian one.
since they nie aimcd furihrring IJS <spiial investmenis in liil)
'l'he.-\yrezmenislsoconr~ins a rule of~uridiraland socialnsiurc whirh (le~eri,eï
full approval, namely, the rule guaranteeing to the worker who moves from one
State to the other the rieht to avail himself. in one State. o, the benefit~ ~ ~ ~ ~ ~~
in the other country wiïh regard to disability or survivor's insurance.This is in
compliance with a healthy principle of safeguardine,the worker's rights, irrespec-
tive of the place wherehe/she carries out lÏis/her aitivity.
The Commission expressesto the Senate its opinion in favour of the ratification
of the Agreement.
(Signed)JANNUZZ~,
Rapporteur
BILL
Article I
The President of the Republic is authorized to ratify the Agreement Supple-
menting the Treaty of Fnendship, Commerce and Navigation between the ltalian134 ELETTRONICA SlCULA
Republicand the United Statesof Amenca of 2 February 1948, signedin Wash-
ingtonon 26September 1951.
Arricle2
The Agreement citedabove takes full eïfect as of the date of its coming into
force,in cornpliance with Articlef the Agreementitself. DOCU~IENTS ANNEXED TO THE COUNTER-MEMORIAL 135
SENAT OEF THEREPUBLIC ~, RLIAMENTARY PROCEED~NL GES, ISLATU1 R11,SESSION
291s~ASSEMBL1 Y9,JULY1960, PAGE1 S3758-13759
[Iralian re.vfnorreproduced]
PASSINGOF THE BILL:"RATIFICATION AND EXECUTIONOF THE AGREEMENT SUPPLE-
MENTlNG THE TREATY OF FRIENDSHIC P,O.UMERC AND NAVIGATION BETWEEN THE
(Passed bythe Chamber of Deputies.)
Presidenr: The agenda brings the debate on the bill: "Ratification and Execu-
tion of the Aereement Suoolementine the Treatv of Friendshin. Commerce and
Navigation gtween the liaiian ~e~ublic and théUnited ~tate'sof America of 2
Februarv 1948,sianed in Washington on 26Seplember 1951". already passed bq
~ ~ ~ ~mbe~~of ~éouiies.
1declare the general debate open.
Sinceno one calls for the floor. 1declare the debate closed.
The honourable Rapporteur has the floor.
Jannuzri, Rapporteur: What is involved is an agreement supplementing a Con-
vention already entered into, which is aimed at improving more and more the
systemof investment of United States capital in llaly and of ltalian capital in the
United States. The Convention, the way it is formulated, appears quite advanta-
geous for the ltalian economy. Ili particular, it displays a social aspect which
should not be neglected,sinceil allowscounting of periods of coverage that have
accrued in favour of the citizens of each ContractingCountry in its own territory
when these cilizens are working in the territory of the other country, with regard
to old-age and disability insurance, except for any overlap or duplication. This
principleissociallyandjuridicallyjust. and for this reason as well,the Con\,ention
must be passed.
The Senate can ratify this supplcmental Agreement with a clear conscienceand
in the conviction of doing somethiiig useful for the Italian economy.
Presidenr: The Honourable Minister of Foreign Affairs has the Roor.
Segni, Minister of Foreign Affairs: Mr. President, Honourable Senators, 1add
my voiceto the points raised by the Rapporteur,and 1ask the Senate to pass this
Convention, whose date. incidentally, is rather far back. so that the delay in
passing it iscausing harm to Oureconomy.
President: We now move on to the discussion of the articles. I cal1upon the
Secretary ta read them.
Russo,Secretary:136 ELETTRONICA SICULA
Article 1
The President of the Republic is authorized to ratify the Agreement Supple-
menting the Treaty of Fnendship, Commerceand Navigation betweenthe ltalian
Republic and the United States of America of 2 February 1948,signed in Wash-
ington on 26 September 1951.
(Ir isapproved.)
Arricle2
The Agreement cited above takes full elïect as of the date of ils coming into
force,in cornpliance with ArticleIX of the Agreement itself.
(Ir isapproved.)
President: 1put the bill to the vote. Those who are in favour are requested to
rise.
(Ir ispassed.) DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 137
Document 15
HEARING BEFOR E SUBCOMMI- OF THE COMMITTE ON FOREIGN RELArlONS,
UNITED STATES SENATE E.IGHTIFTHCONGRESS S. COND SESSIONO.NA AOPOSED
TREATY OF FRIENDSHIC P,OMMERC AND NAVIGATIOB NE, TWEE NHE UNITED
STA~ AND THE ITALIAN REPUBLIC 3,0 APRIL1948
IIHOt'OSCTRïArYOF FKIThOSlllPCOhl~lCRCFAND SA\'l<iATIUSRETU'FFS TIII:
UNITI.ilAIF+S 4Nll'IIIIAI.IARH'LIBLIC
Friday, 30 April 1948.
United StatesSenate,
Committee on Foreign Relations,
Subcommittee on ltalian Treaty,
Washington, D.C.
The subcommittee appointed to study the proposed treaty of friendship, com-
merce, and navigation between the United States and the ltalian Repuhlic met,
pursuant to call, in room 312 of the Senate OfficeBuilding, Washington, D.C.,
at 10o'clockam., Senator ElberD. Thomas of Utah (chairman of the siibcom-
mittee) presiding.
Preseni:Senators Thomas of Utah and Lodge.
Alsopresent: the Honorable Willard Thorp, Assistant Secrelary of State for
Economic AtTairs: Mr. Winthrop Ci. Brown, Acting Deputy Director, Officeof
lnternational Trade Policy and Chief, Division of Commercial Policy; Mr. Wal-
worth Barbour, Chief, Division ofSouthern European Afairs; and Mr. Vernon
G. Setser, Acting Assistant Chief, Division of Commercial Policy, Department
of State; Mr. Thomas C. Blaisdell, Ir., Director, Officeof lnternational Trade,
Department of Commerce.
Senoror Tlion~usolU~iih: The committee willpleasc be in order. Thc conimittec
is mieting today to consider the proposcd treaiy of friendship. commcrL.e.and
navigation betuecn the United States and the Italian Kepublic.
This is 3n important day in thc development oiour rslstions wiih Itiily. Ws
arc opening hearings today on a treaty of friendship and commerce uiih Italy
which is of sienificancc for hoth i>urcountrtçs. For the Cniied 11is the
first treaty ofyts kind negotiated with any European country since 1934.
The treaty. furthermore, marks another milestone in the traditionally cordial
relations bétweenthe ltalian and the American peoples. These relations have.
ken marked byOurextension of reliefand other aid to Italy, Ourquick ratification
of the treaty of peace with Italy. and Our passage of the European rçcovery
program in which ltaly plays an important role.
For Italy, fhis treaty is a further development in the resumption of her custo-
marv resoonsible oosition in the familv of na-ioa ~osition which. we how.
willioo; he fullykestored hy her admission to the ~niÎed Nations, a ;tep which
1have urged for a long tirne. Incidentally, there 1might Saythat it became my
honor and dutv to make the motion and to deliver as~eech invitine ltalv into
the lnternatioial Labor Organisation in 1945.In this tkaty. the firsÏof its kind
negotiated by llaly since the return Io normal relations, the Italiafl Government, 138 ELETTRONICA SICULA
moreover, has given evidences ofsupport of the liberal principles of businessand
trade which the United States has advocated for many years.
Now that the Economic Cooperation Administration bas begun ils operation,
it is of the highest importance that normal commercial relations with the partici-
pating countries be reesiablished so that the greatest possible use can be made
of private channels of irade, as specified by the provisions of the Economic
Cooperation Act. The present treaty, therefore, provides a stable framework
within whichAmerican businessmen. withassurances of orotection and absolutelv
~ ~ ~ ~
fair ircainient. cdn niakc a gre.ii conirihution10 ihc su~.;c\i oi the Eiiropciin
recoicr) progrdni ;ind ihc rcii\.dof the Iialian cconom) u,iih thc nian) niutu31
bcnc0ts which cm bc derived from ihc,e tuo imoorrani obieiiivcs
Now 1would like to ask some questions in a ra'thercategorical manner dealing
with the treaty and the background leading up to the treaty. Some of these
questions we will ask Mr. Blaisdell to answer and some Mr. Brown, so that if
they al1will offer the answers when they have them 1will appreciate it, because
it is background and foundation that we need in dealing with the treaty.
ALlEN PROPERTY
First of all, how does this treaty atïect Our Alien Property Custodian's work
in the United States?
Mr. Brown: It does not atïect it at all, sir.
SenarorThomasof Urah: In other words, al1that the Alien Property Custodian
may have of ltalian property will be administered and the property will be
returned or adjudicated, or whatever it is they do with it, entirely independent
of any provisions in this treaty.
Mr. Brown: That is correct, sir, and after it goes back to the ltalian national,
then he is able to claim the rights under the treaty.
SenarorThomasof Urah: Those, then, are the rights of an ordinary ltalian
citizen, and not a former alien enemy.
Mr. Bro~n: Yes, sir.
SenarorThomasof Urah: Do we need any more information with regard to
that, Mr. Brown? Can 1Saycategorically that the treaty in no way affects any
of the relationships which come about as a result of the administration of the
Alien Property Custodian law?
Mr. Brown: That is my understanding, Senator.
Senaror Thomas of Urah: One more of a general kind: 1s there anything in
this treaty which will in any way affect any cases which we may have under the
Trading with the Enemy Act?
, Mr. Brown: No, sir.
Senaror Thomas of Urah: Ordinarily, the Trading with the Enemy Act is a
prohibition against American citizens; is it not? Still, as this is a mutual commer-
cial treaty, we may have cases dealing with American citizens under that act
which might in some way be related to this treaty. Can any of you think of
an.thin- that we should know about?
Mr. Brown: 11is my impression, Senator, that there is no possible conflict
there, but 1would like to check that specificquestion with Our legal people and
give you a firm memorandum by tomorrow.
(The matter referred to is as follows:)140 ELETTRONICA SICULA
Mr. Thorp: There are a number of treaties which have been revived,and 1
think perhaps the most helpful thing would be for me to offer the press releases
from the Department of State in connection with these matters.
(The matier referred to is as follows:)
For the Press February 11, 1948.
No. 108.
The Department of State announced today that on February 6, 1948,the
ltalian Government was given official notification, in accordance with the
ierms of the Treaty of Peace with ltaly signed at Paris February IO, 1947,
regarding the pre-war bilateral treaties and other international agreements
with ltalv which the United States Government desired to keeo in force or
revive. ~ollowin~is the text of the note [rom the American ~hbassador at
Rome to the ltalian Minister for Foreign Affairs giving such notification:
1have the honor to refer to the Treaty for Peace with ltaly signed at Paris
February 10, 1947,whichcame into force, in accordance with the provisions
of Article 90thereof, on September 15,1947, upon thedeposit of instruments
of ratification by the Union of Soviet Socialist Republics,the United King-
dom of Great Britain and Northern Ireland, the United States of Amenca,
and France. Article 44 of the Treaty of Peace reads as follows:
"1. Each Allied or Associated Power will noiify Italy, within a period
of six months from the comine i-to force of the oresent treatv. ,,ich of
ils prewar bilateral treaties with Italy it desires to keep in force or revive.
Anv orovisions not in conformitv with the oresent treatv shall. however.
be dileted from the above-mentioned treatiés.
2. All such treaties so notified shall be registered withthe Secretariat of
the United Nations in accordance with Article 102of the Charter of the
United Nations.
3. All such treaties not so notified shall beregarded as abrogated."
I have the honor. bv direction of the Government of the United States of
America and on its behalf, to notify the Italian Government, in accordance
with the orovisionsofthe Treatv of Peaceauoted above. that the Government
of the ~nited States of ~mirica desire; to keep in force or revive the
following prewar bilateral treaties and other international agreements with
ltaly:
Arbirrarion
1. Arbitration treaty. Signed al Washington April 19, 1928. Ratified by
the United States May 15, 1928. Ratified by ltaly November 27, 1930.
Ratifications exchanged at Washington January 20, 1931.EffectiveJanuary
20, 1931.(Treory Series 831, 46 Stat. 2890.)
2. Air navigation arrangement. Effected by exchange of notes signed at
Washington October 13,and 14, 1931. EffectiveOctober 31, 1931.(Execurive
~~reeménS reries 24; 47 Stat. 2668.) DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 141
Conciliarion
3. Treaty for the advancement of peace. Signed al Washington May 5.
1914.Ratifiedby the United States March 17, 1915.Ratifiedby ltaly Novem-
ber 29, 1914.Ratifications exchanged al Washington March 19, 1915.Effec-
tive March 19, 1915.(Article II was abrogated and replaced byArticle I of
the treaty of September 23, 1931).(Trealy Series 615: 39 Stat. 1618.:)
4. Treaty modifying the terms of Article II of the treaty to advance the
cause of general peace of May 5, 1914.Signed at Washington September23,
1931.Ratified by the United States June 25, 1932.Ratifiedby Italy February
18, 1932.Ratifications exchanged al Rome July 30. 1932.EffectiveJuly 30,
1932.(Treay Series 848; 47 Stat. 2102.)
Consuls
5. Consular convention. Signed at Washington May 8, 1878.Ratified by
the United States June 4, 1878. Ratified by ltaly July 9, 1878.Ratifications
exchangedat Washington September 18, 1878.Effective,September 18, 1878.
(Article XI, which was annulled by the Convention of February 24, 1881,
and Article XIII, which was abrogated under act of Congress approved
March 4, 1915, are not to be considered as revived by this notification.)
(Treaty Series 178; 20 Stat. 725.)
Debrfunding
6. Debt-funding agreement. Signed at Washington November 14, 1925.
Effectiveas of June 15, 1925.(Comhined Annual Reports of the World War
Foreign Debt Commission (1927)p. 222.)
7. Agreement modifying the debt-funding agreement of Novernber 14,
1925(moratorium). Signed at Washington June 3, 1932. Effectiveas of July
1, 1931.(Published by the Treasury Department, 1932.)
Exrradition
8. Extradition convention. Signedat Washington March 23, 1868.Katified
hy the United States June 22, 1868.Ratified by ltaly July 19, 1868.Ratifica-
tions exchanged September 17, 1868.EffectiveSeptember 17, 1868.(Treary
Series 174: 15Stat. 629).
9. Additional article Io extradition convention of 1868.Signedal Washing-
ton January 21, 1869.Ratific;itionsexchanged at Washington May 7. 1869.
EffectiveMay 7, 1869.(Trear.~Series 176(printed with 174); 16Stat. 767.)
10. Supplementary convention to extradition convention of 1868. Signed
at Washington June 11, 1884. Ratified bythe United States April IO,1885.
Ratified by ltaly August 8. 1884.Ratifications exchanged at Wasliinglon
April 24, 1885. EffectiveApril 24, 1885.(Treary Series 181 (printed with
174); 24 Stal. 1001.)
Narcotic drugs
II. Arrangement for the direct exchange of certain information regarding
the traffic in narcotic drugs. Effected hy exchange of notes signed al Rome,
January 5, and April 27, 1928. EffectiveApril 27, 1928.(Treaty Informarion
BullerinNo. 5 (July 1929)2d supp.)
Navigation
12. Agreement relating to the reciprocal recognition of certificates of
inspection of vesselsassigned to the transportaiion of passengers. Effectedby exchange of noies signed at Washington June 1, August 5, and Augusi
17, 1931.EffectiveAugust 15, 1931.(Erecutive AgreementSeries 23: 47 Stat.
2665.)
Pussport visujees
13. Agreement relating to ihe waiver of passport visa fees for nonimmi-
grants. ERectedby exchange of notes signed at Rome February Il, 21. and
26, 1929.(Not printed.)
Postal
14.Convention relating to exchange of money orders. Signed al Washing-
ton March 31, 1877,and ai Florence April 20, 1877. EffectiveJuly 2. 1877.
(20 Stat. 683.)
15.Additional convention to the convention relating10exchangeof money
orders signed at Washington March 31, 1877, and at Florence April 20,
1877. Signedat Washington August 24, 1880,and al Rome August 9, 1880.
Ralified by the United States August 25, 1880.(21 Stat. 788.)
16. Parcel Post Convention. Signed at Washington October 11, 1929.
Ratified by the United States October 18, 1929. (Post Office Department
print; 46 Stat. 2397.)
Tu.r<ifir,n
17. Arrangement for relief from double income tax on shipping profits.
Effectedby exchange of notes signed at Washington March 10,and May 5,
1926. Effectivefrom January 1, 1921. (E.recufiveAgreemenf Series 10; 47
Stat. 2599.)
Trade-marks
18.Declaration for the reciprocal protection of marks of manufacture and
trade. Signed al Washington June 1, 1882. EffectiveJune 1, 1882.(Treuty
Series 180: 23 Stat. 726.)
This noiification will be deemed to be effective on the date of the present
noie.
It is understood, of course, that either of the two Governments may
propose revisions in any of the treaties or other agreements mentioned in
the above list.
Further. it shall be understood that any of the provisions in the treaties
and other agreements listed in this notification which may befound in
particular circumstances to be not in conformity with the Treaiy of Peace
shall be considered to have been deleied so far as the application of the
Treaty of Peace is involved but shall be regarded as being in fullforce and
effect with respectto matters not covered by the latter treaty.
The reciprocal copyright arrangement between the United States and ltaly
effected pursuant to the exchange of notes signed at Washington, October
28, 1892,and the exchanges of notes signed at Washington, Sepiember 2,
1914,February 12, March 4, and March 11, 1915,will be the subject of a
separate communicaiion.
The agreement for the protection of trade-marks in Morocco, effected by
exchange of notes signed at Tangier June 13, July 29, and December 19,
1903,and March 12, 1904,will also be the subiect of a separate communi-
calton.
In cornpliance uiih p~rilgraph ? ~i Art~cle44 <)ithe Trcilt! 01'PCJCC.
quoied aho\e. ihc üniicd SiaiesGoicrnmcni \\,IIIrcgiricr wiih thc Seircisriai DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 143
of the United Nations the treaties and other agreements which are by this
notification kept in force or revived.
DI;PARTMI:N OFTSTATE
March 16, 1948.
For the Press.
No. 207.
In the notification given to the ltalian Minister for Foreign Afiairs on
February 6, 1948,regarding the prewar bilateral treaties and other interna-
tional agreements with ltaly which the United States Government wished to
revive or keep in force (see press release 108of February 11, 1948)it was
stated that the reciprocal copyright arrangement and the agreement for the
protection of trade-marks in Morocco would be the subject of a separate
communication. Following is the text of a note deliveredon March 12, 1948,
to the ltalian Foreign Officeby the American Ernbassy at Rome:
"1 havc the honor to refer to iny notc of February 6, 1948,givinp oficial
notification. in accordance with Article 44 of the Treaty of Peace with ltaly
dated ai Paris February 10, 1947.regarding the prewar bilateral treaties and
other intern;itional agreements with ltaly which the United States desires to
keep in force or revive. It was stated in that notification that the reciprocal
copyright arrangement between the United States and ltaly and the
agreement for [heprotection of trade-marks in Morocco would bethe subject
of a separate communication.
I have the honor to inform you now that the Government of the United
States of America wishes to include the reciprocal copyright arrangement
between the United States and Italy eiTectedpursuant to the exchange of
notes signed at Washington October 28, 1892,and the exchanges of notes
signedai Washington Septernher2, 1914,February 12,March 4, and March
11, 1915, among the prewar bilateral tredties and other intcriiational
agreements wiih ltdly which the United States desires to kccp in hrcc or
revive. Accordingly, it is understood that the afore-mentioned arrangement
willcontinue in force and that the Govcrnmenl of each country will cxtend
to the nationals of the other country treatment as favorable wiih respect to
copyrights as was contemplatcd al the lime the arrangement was entered
into by the two couniries.
The Government of the United States of America also desires 10continue
in force or revive the agreement for the protection of trade-marks in Mo-
rocco, effected by exchange of notes signed in Tangier June 13.July 29.and
December 19. 1903,and March 12, 1904."
.MI Tliijrp Thc subjr'ci-ni:iiicr>in\ol\sd;ire~op)r~j!hts..irb~tr;itio- Ihls Ir
not :iconinicrcia1;irbitr;ition bu3 ~JIIIICJ,I~rh~lr;il~nrciity- a) laIlon.i<ini~l~-
atiùn. consular cùn\cniion, dshi iundin~ arrccmsni uhich kas to Jo \\i:h ihr.
moratorium of 1925 - extradition conv&zon, narcotic drugs, navigation, psss-
port visa fees. postal conventions, arrangement for relief from double tax on
shipping profits,and trade-marks. That is the lis1of the previously existingtreaties
which have been revivedby declaration by this Government.
Senoror Thonius O/ Urah: Revi\,ed as a result of the Face treaty of 1947?144 ELETTRONICA SICULA
Mr. Thorp: As a result ofthe peace treaty, which gaveauthority 10revivethem
on such notification. Any other treaties which werenot so notified lapse under
the peace treaty.
Senoror Thomasof Urah: That is, there remained in the United States the
power to revive or the power to not revive any agreements that existed before
the war?
Mr. Thorp: That is correct.
ACTION BY THE ITALIAN WVERNMENT
SenororThomasof Urah: Whai steps have been taken by the ltalian Govern-
ment to ratify this treaty, Mr. Thorp?
Mr. Thorp: We have ken informed by the ltalian Emhassy thai ihe Iialian
Government wishes to proceed in parallel with the United States on the matter
of ratification. The newly elected ltalian Parliament convenes on May 8. They
willundoubtedlv havecertain oreanization businessto do. but it isOurexoectation
thatthis will béconsidered by ;hem as soon as practical after May 8.'ln other
words. there is approximately a pardllel consideration by the ltalian Parliament
and by Our Congress of the irealy.
RELATIONSHIPTO PEACE TREATY
Senaror Thomas of Urah: What is the relationship of this treaty 10the treaty
ofpeace with Italy?
Mr. Thorp: The treaty of peace with ltaly contained in Article 82some general
economic provisions which wereto he applied for a period of 18months. 1can
sa". because 1 was involved in ne~oliatina~this article. that the orovision was
, . -
intcndcd to gowrn thc siluaiion uhilc ilwas pos.ihlc iincgolialc more clahorair.
trraiie,. andIIu,ÿsfor lh31rcason thal the pcacc trc3t) contains a raiher grncrîl
l'orrnul3f~ir;in IRmiinthi' pcriod. Thcrc ir iioihing in ihis proporcd trcay uhkh
1sin confliçi u,iih the pcax treaiy. Weha\,c hadiicxaminrd hy thc lrgal îJi,iscr's
orticein the Dcpartmînt of Staic and ha\,csuch an opinion Thcre is noihing ln
this treatv thatwould orevent the revision of the oeace treatv if that should be
desirable: or that hears on one of the most impo;tant undekrmined problems,
and that is the final disposition of the ltalian colonies.
S~narorTlioniusofUrulz WiIIyou sîy somcrhingabout lhît" WillIhis ~ISPOSI-
iion ha\e dny clTcclupon th15treaty under con,idcr~Iion'
Mr. Thorp: No, it would not. Il would, 1suppose, follow that if some or al1
of the ltalian colonies were returned 10 Italy, then this treaty would have a
bearing on the applicable procedures in those colonies.
SenatnrThomasof Urah: That is. the treaty would be extended to cover the
colonies?
Mr. Thorp: Yes; that is correct.
Senaror Thomas of Urah: Does the treaty reach the colonies today?
Mr. Thorp: No, 1do not think it does. Those colonies today are not under the
jurisdiction of Italy.
Senaror Thomas of Urah: Under whose control are they?
Mr. Thorp: May 1ask Mr. Barhour? DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 145
Mr. Barbour: The colonies were surrendered by the peace treaty, and in
accordance with the decisions of the Council of Foreign Ministers, a commission
is now examining with a viewto reporting ils findings at an early date conçerning
the disposition of the colonies. If within a year no decision is made, the question
of their dispositiongoes to the United Nations.
Senaror Thomas of Urah: Who administers the government in those colonies
at the present lime, an inter-Allied commission of some kind?
Mr. Barbour: They are still under British military administration.
SenatorThomasof Utah: The British have al1of them?
Mr. Barbour: The British military mission is in al1of them, I think.
COMPARIÇON WITH PREVIOUS TREATIES
Senaror Thomas of Urah: In what way does this treaty consiitute a departure
from prewar commercial relationships with European colonies, Mr. Thorp?
Mr. Thorp: There are a number of new developments in connection with
treaties which are signified in this case. In therst place, one of the conspicuous
differencesisthe general recognition of the riseof the corporation as an important
economic instrument.
SenatorThomas ql Urah: When you speak of "corporation". that immediately
arouses something in my system. or in me, because of the Fascist or Mussolini's
theory of the corporate state. 1sthere any relationship?
MK Thorp: No, there is no relationship at all. 1am thinking of the corpr>ration
merely as a form of organization for doing business in the sense in which we
have corporations in this country.
SenarorThornosof Urah: A body created by law.
Mr Thorp: That is correct.
Senaror Thomasof Urah: And "corporation" in ltaly means the same as
"corporation" in the United States, and wherever the word is used in this treaty
it has the same legal significanceas it has within the United Siates? 1sthat truc?
Mr th or^: That is true exce.t. of course. as between differentcountries there
are differences in corporation law in its details, but funddmentaiiy ilis correct
that we are talkin- of this form of cconomic org.nization with which we are al1
familiar.
Senaror Thomasof Utah: It has nothing at al1 to do with the old political
concepts?
Mr Thorp: It has nothing to do with a corporate state which was a highbrow
name for the old Nazi oraanization in which whole industries were ora.nized on
a basis of a centralcontril.
Another element that is new in this treaty is the paragraph with the article in
it relative to freedom of information. This is a new type of provision and, 1think.
is perhaps one of the mosr important new developments. This is in Article XI in
the treaty.
Then there are a series of provisions having to do with exchange difficulties
which are necessary because of the monetary problems that have developed since146 ELETTRONICA SICULA
the war, and recognition of those and protection against discriminatory operaiion
in connection with exchange conirols.
Then there is a new approach to the problem of what happens when a govern-
ment goes into business and then the necessity,if there remain private enterprises
in competition, for a fair opportunity being given to those compeiing private
enterprises, and there is in this treaty a provision creating obligations for fair
treatment of private enterprises when they are in a position of competition with
public enterprises. In the past ihere have been - 1 think perhaps they are
iightened up in this treaiy- provisions with respect to a compleie change; that
is, nationalization, but now 1am referring particularly to cases where there exisi
side by side public and private operation.
Those are the chier new developments that occur to me. Do you have any to
add, Mr. Brown?
Mr. Broivn: No; those are the major ones.
SenarorThomasof Urah: Tcll us a little more about the information provision,
Mr. Thorp.
Mr. Tllorp:This is the first treaty to come before the Senate which has contained
a svecific ~rovision for eivina eiïect internationallv to the ideal of freedom of
inf;>miati;n. This princiile isàlrcady endorsed by ihc Congress in a concurrent
resolution adopted in 1944,and the United Nations Conference on Freedom of
Information al Geneva has recenilv com~leted a formulation of certain recom-
mendalions looking toward a multilaterai approach to this problem. The provi-
sion in the present treatyoiïers a minimum standard of treatment which we hope
may bc included in many bilateral treaties hereafter and which should provide
worthwhile protection for American nationals engaged in information activities.
When 1 describe it in terms of Amcricans in Italy, of course this is a mutual
treatv and the same orivile-es would be eiven to ltalians in the United States.
II pcriiiiir naitonds. ssrporniions. .inJ ;i,so~i:iiIOeng.igc in such iciii,iii:>
in ihc oihcr ci>uniryar uriting. rcpuriing. pithcring <~I'inli~rmiiinr Jisccmind-
lion to the public; it provides freedom of transmission of material to be used
abroad for publication hy the press, radio, motion pictures, and other means. It
provides freedom of puhlication in the territories of the other party under what-
ever mav be the a~olicable laws and reeulations on the same ierms as nationals
may have in that country. It does not provide a special pnvilege, in other words,
but it provides a national treatment in connection with publication.
The term "information" as aereed io here refers to~orinted matter. motion
pictures, recordings, photographi, written communications of al1kinds.
SenarorThomasof Utah: Does anyone have anything to add to that?
PROTECTION FOR AMERICAN BUSINESS
What new features and protcciions are provided for Amcrican business? For
example, protection against discriminaiory exchange?
Mr. Broivn: The treatv recoebizes the fact'that il mav be necessarv. under
certain circumstances, when there are great shortages of exchange, io exercise
control. The main thing that the ireaty does is to ~rovide that whcn such controls
are necessary they mus1 be exercised in a nond;scriminatory manner. and that
where there are limitations on the iransfer of dollars, for example, everybody OOCUMEKTS ANNEXED TO THE COUNTER-MEMORIAL 147
should get the same treatment, both in terms of exchange rate and in the share
of theamount of dollars proportionately that they are allowed to take out. The
principle of nondiscrimination is the basic one.
SenuforThomas (ifUfuh: You alreadymentioned Statctrading and moncipolies.
Have you anything more to Sayabout ihat - the ideas behind trading by State
and monopolies?
Mr Brown: The treaty provides that where either party engages iiiState
trading, the State-trading organization mus1 be guided in its operations by the
ordinary commercial principles of pricc and qualiiy and terms of sale aiid that
type of thing ihat the ordinary businessman would be controlled by in a com-
pletelyprivaie-cnterprise system. 1think it isonly fair to Saythat that isa ~lifficult
standard 10 administer, but il sets a principle and it gives an opportunity for
re.re~ ~ ~tions if it is no1 lived uo to.
And ihc second ihing thai the irc:iiy docs is th;iritpro\,idc, thaiii ihc siair.
tr~dingrnicrpric pet.an) particul:,r bsnerits from thc tiovcrnmeni. thnsc \>cnciits
must be cxicndedsimilarl~ to the orivate enter~rise of the other country if it is
in competition in the same business. Thai is 1; Say, if there were an ~merican
corporation doing business in Italy and there were an Itiilian statc-trading enter-
prise engaged in the same business, the American firm would beentitled to receive
any, shall we Say, iax exemption or special privilege which was accorded to ihe
compeiing Italian State enterprise, and vice versa.
SI'ATETRADING
Senuror Thonz<is of Utah: This provision, your state-trading and monopoly
idea, the actual monopoly, is a rather one-sided provision. Are you no1ihinking
more of ltaly than you are of ourselves?
Mr. Broun: Yes.of course; the ltalians are much more likely to use that form
of enterprise than we would be.
Senutor Thonius (ifUtah: Do you cal1those corporations that iraded under
the China Tradc Act of '22state-trading orgdnizations?
Mr. Brown: No, sir. They are simply a privaie corporation incorporated under
a Fedcral Iaw instead of a State law.
SenororTliom«sqf Utah: And organized for the purpose of trade? But we did
not do any State trading, did we, under that act?
Mr. Broivn: Oh, no. They were purely private enterprises, and in fact the only
way in which they were different from any other corporation was, first, chat they
had a Federal charter instead of a Siate charter;and secondly. that they received
certain tax exemptions in this country.
SenuforTliomu.~ of Ufuh: In Oursystem, have you an example of State trading
at all?
Mr Broiw: Oh, yes. The Government does a good deal of procuremeiit. The
Treasury Depariment buys; the Agriculture Department huys grain; the Metals
Reserve Corporation used to buy for stock piling; the Rubber ReserveCorpora-
tion bought rubber; so that we have had in this country a certain amciunt of
State trading, and that would be a kind of State trading enterprise.
SenuforThon~us of Ufuh: The treaty will not interfere with that.
Mr. Broun: Ii will no1 interfere with that. It will cover the situation that if
there should be an Italian corporation doing the same thing;we would have to
give them Pairtreatment. but we think the chances of that are pretty remote.148 ELETTRONICA SICULA
SenarorThoniusof Uroh: Have we a private monopoly al al1in Amcrica that
we have io think about?
Mr. Bro~in: A private monopoly would not comc under this clause at all.
SenurorTliomusof Uroh: It is not recognized in this at all?
Mr. Brown: There is a provision in the treaty which says that the parties
recognize that business practices restraining competition - in words, cartel
practices and monopolies -are undesirable, and if the naiionals of either get in
trouble in that kind of situation there will be consultation to see what can be
done about il. That is the only case in which il is mentioned.
SenororThomusof Utoh: In other words, these provisions. so far as the United
States is concerned, are put in there for the benefit of Our own traders against
what might happen in the other country?
Mr. Broien: Tbat is the principal idea that we had in mind.
SenarorTlzomasofUroh In the sameway, nationalization and expropriation-
are we thinking primarily of what might happcn in Italy, too, there?
Mr. Broiin: Oh, yes.
SenororThomosof Urol~: Have we any examplc of nationalization, aside from
stock piling?
Mr. Brown: Wewould have examples of expropriation under eminent domain.
but it would be Ournormal practice to give prompi and just satisfaction in terms
of convertible currency.
SenororTl?oni<io sf Uroh We have never considered eminent domain as being
a practice that brought about confiscation; have we?
Mr. Broiin: No, sir. It is something that is done rarely, and then only on fair
and full compensation adjudicated by the Court.
SenorurTliomasof Uroh: Do you think this treaty is powerful enough to extend
those theories. so far as Ourcitizens are concerned. to Iialy?
Ilr.Bro~iti Thcrc is a forma1iommitmrni in the trcat! rlating ih.11ihc Iidlian
Go\rrnmcni u,illgi\c prompi. juai and cii'ccti\ccompcn.<iiion.Thr diiliiult! ihii
ir Iikrl) io cumc up ihcrc \v,>uldhe ihc Jiriicult\ of pro\ iding ihe iorcicn c\chanre
to our-national in payment for his property,~and~onthatscore weare coverëd
in the exchange provisions. We gel the best treatment. or as good treatment as
either an ltalian national or the national of any other country gels. That is the
most you can do if there just are not enough dollars to go around.
EFFECT OF THE PROTOCOLS
SenarorTliomasof Uroh: The two protocols beginning on page 23ofthe Senate
document seem io cancel out some of the treaty. What is ihe effect of these two
prolocols, Mr. Thorp?
Mr. Tliurp: 1think perhaps Mr. Brown had ktter answer ihat.
Mr. Brown: The first protocol is mainly corrective. The second one recognizes
the current difficulties in which ltaly finds herself because of the shortage of
foreign exchange. and il relaxes some of the provisions of the treaty which
obligate ltaly to give advantageous treatment with respect to foreign exchange DOCUMENT S NNEXIiD TO THE COUNTER-MEMORIAL 149
when they are in a condition where their reserves are very low or where they are
in realbalance-of-payment difficulties,and it was felt that it was better to get a
good, firm, satisfactory rule in the ireaty itselt which would las1 for tlie long
term, and then recognize what we hope will he the transitional difficultiesof the
current period in a protocol giving, so to speak, a temporary waiver of those
provisions, than it would be to take a weaker provision in the treaty itself.
The protocol, generally speakiiig. permits the ltalians to depart - this is
principally for the benefit of Italy. of cours- somewhat from the rules in the
treatv with resoect to foreien exchanee bv im~osinp restrictions which would be
perGtted und& the articles of agreemeni of the ~Onetar~ Fund. or restrictions
on the transfer of exchange which are similar to those which we have negotiated
with other countries in sÜchdocuments as the general agreement on tariEs and
trade recently concluded a1 Geneva. But this is simply a recognition of the fact
that when a country is extremely short of dollar exchange, it will have Io take
some very tight control, and someiimes discriminatory control, measures, simply
to gel what it mus1 have in order 10 survive, and it is in Our interesi as well as
iheirs torecognize that fact, but simply to be sure that ihey do no1do it excepi
when they really need 10.
Senoror Thomasof Umh: In other words, your hope is that the protocol
provisions will be temporary?
Mr. Brown: Paragraph 2 of the additional protocol states that the provisions
which it eives are limited to situations where it is necessarv for ltaly to restrict
-
imports in order to forestall serious decline in monetary reserves, or to get
necessar. imp.rts which they could not possibly get in any other way. Those are
the only cases in which il applies,
ITALIAN TRliATY OhllTS COMMERCIAL ARBITRATION
Senaror Tlionios O/ Uroli: The Iialian treaty omits mention of commercial
arbitration which is included in ihe China treaty. What is the reason for this?
Mr. Thorp: In this case, Mr. Senator, the provision in the China ireaty was a
difficultone forthe Iialians to accept hecauseof their beliefthat il was incompaii-
ble with their own ltalian law. This is not left out hecause of a fundamental
disagreement with respect 10 the desirability of commercial srbitration, but the
difficultvof findine a formiila that was acce~table. As vou. of course, know, the
problek with these treaiies arises from the fict that weiiavc certain ihings which
we should like, from the Ainerican point of view, to place in the treatics, but we
know that when we arrive al agreement with the other country there ivill be
deviations among al1of the treaties. It does not mean that there is a differcnce
in Our American approach. but thai there necessarily mus1 be some adaptation
to the wishes of the other country and their legal position.
This particular case is one where we have had difficultyin working out some-
thing that will fitboth of Our legal structures with respect to arbitraiion.
REFERENCE TO SOCIAL-SECURITY PROVISIONS
SenoiorThoniosof Uroh: The reference io social securityand other compulsory
insurance schemes is an innovation in this kind of treaty, isil noi?
Mr. Broiin: Yes, sir.Senator.
SenarorThomasof Urrih: Why is it in the treaty?150 ELETTRONICA SICULA
Mr. Broii,n: The ltalians really were the spark plug on ihis provision. They
were very anxious to work out someextremely elaborate provisions about social-
security benefits wiih which we were no1 able to go along, and this broughi a
modest provision which simply saysthat either party can have the benefit of the
schemesin efect in the other country. That was what we finally came out with.
SenororThomasof Urah: What is the practical aspectof this? Take a concrete
example of an ltalian national who has beenworking in Our country. He has a
social-security number here and goesover and works in Italy. Does he take any
equity with him?
Mr. Brown: No more ihan if he went 10 any other country. Nothing in the
treaty would give him any benefitsexcept what he would be entitled to under his
social-securiiy number.
Senaior Thomasof Urah: Now then, reverseit.
Mr Brown: 1think this would saythat you could not excludean ltalian citizen
resident here and otherwise entitled to social security.
Senaior Thomas of Urah: In other words. if vou are eivine social securiiv to
dllciithc uorkmcn in somcbigiurpùr~iion in uur c<>uniry.iian Iialian inimigrmi
comcs in and gels a ]oh. hc uill CnJO)the s~imerighis of social sccurit), :lnd he
will have to live up to the sameobligations?
Mr. Broiin: That is correct.
SenororThornusof Utah: And he will no1be treated in any way diferent from
the American national. If he quits hisjob, whatever he is entitled to he gels, and
what he is not entiiled to he cannot gel, even if ltalian law - and he may still
be having some advantages over in Italy from an old social-security arrange-
ment - is more liberal.
. B . Oh. )CS.Al1 hc geis isu,hai ihc American &ci\ undcr ihe Amcric;in
Iaw. And al1thc Amcrican naiional in ncompar3ble position in Italg gelsis what
the ltalian would -et under the ltalian law
SenaiorTlron~os O/ Urah: We are not in any way modifying Our Social Security
Aci?
Mr. Broiin: No indeed.
SenororThomasof Uloh: Ail right.
FREEDOM Of ISFORMATIOS
Article XI, section2, contains a "freedom of information" provision. That has
beenmentioned. Now let us seeif there is something more we want to ask about
that. It was suggestedthat it is new.
Mr. Thorp: Yes; this is new.
SenaiorThomasof Urah: Cive usthe relationship betweenthe article and what
we have attempted to bring about in the World Conference on Freedom of
Information at Geneva, Mr. Thorp.
Mr Thorp: 1think they are both directed at the sameobjective. Our fundamen-
ta1objective is io achieve al1that is meant by the phrase "freedom of informa-
tion" - the opportunity of individuals to go in and make inquiry. regardlessof
what the jurisdiction over the area may be; their freedom to send reports out
and the freedom oi publication wiihin the area as much as freedom may exist
wiihin the area. There is no distinction. really, between the objectives ihat are DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 151
incorporated in this treaty and the objectives of Our delegalion al the recent
conference.
Of course, at that conference there was a great deal more in the way of
elaboraiion of such problems as who was responsible for honesty on the part of
the press, and so forth. But this is really taking action as between ourselves and
ltaly in a field inwhich the Unitcd Nations is trying to wrile policy but has no1
yet reached a point where action as such is on the horizon.
Senalor Thomas"f Utah: Can we go so Faras 10Say thal what we are doing
is quite experimental?
Mr. Thorp: 1 think that is true. 1 think1 would prefer to cal1il piorteering
rather than experimental. It is a new area.
SenarorLodge: What is the United Nations doing about il?
MI. th or^:The Freedom of Information Conference. which has recentlv been
held was for the purpose of trying to develop an international opinion.which
might be incorporated into conventions or a multilateral agreement that would
es6blish certain principles with respect to freedom of information
COMPARISON WlTH PREVIOUS TREATIES
SenatorLodge: Has the State Department made a lis1anywhere of the fcatures
of this treaty which are different from what we have done in the past?
Mr Thorp: I have sumrni~rizedthat brieRyin an earlier statement. but we can
make a very exact and formal statement on it if you would like.
Senator Lodge: 1 would like 10 have il exact. 1 do no1 want 10 have il too
formal. 1would like jus1 a general idea of how this is different from what we
usually do. That is. afler al], what we have to confront up here. Can you do
that? Il seems to me it i. ore.tv hard to reach a decision on a matter of this kind
which is as long as this is. and as intricately written as this, unless you know
what is new and what is merely~.epeating the traditions.
Mr. Thorp: 1 think the total picture should be clear if you take the material
that was presented to this committee with respect to the China treaty. where
there was a fairlv eeneral discussion of both the standard ~rovisions and some
new provisions, an; if weincorporate in the record, or if I iresent the statement
which I have prepared, which outlines things that are new inthis treaty or things
which are different from the China treatv
SenarorLodge: Can you no1Saveus the labor by comparing the whole thing?
Can you no1give us a brief lis1of the things in this treaty that are new'?
.
Mr. Thorp: 1 will be glad 10 give it to you or to outline again. if Senator
Thomas wants me to, a brief lis1that 1gave before.
Senaror Thomas of Uruh: 1think as a sum-up of what has already been said
in answer to Senator Lodge's question, we could have it al1in one paragraph.
Mr. Thorp: All right.
SenatorLadge: You can see for yourself the things that are traditional. that
we have always done, are matlers that on the committee we can put to one side,
but things that are new are the things that we can put the magnifying glass on.
Mr. Thorp: We will prepare such a statement.
(The statement is as follows:) COMPARISO ONTHE TREATY WlTH ITALYS,IGNEDFEBRUAR2Y , 1948,WlTH
PREVIOU TREATIE OF FRIENDSHIC P, MMERC AN,DNAVIGATIO CONNCLUDED
BYTHE UNITED STATES
In the period from 1923to 1938,during which the Department of State
was engaged in an extensive program directed to the conclusion of treaties
of friendship, commerce, and navigation. about a dozen treaties of this
general typewereconcluded, including treatieswith Germany (1923).Austria
(1928). El Salvador (1926), Finland (1934), Honduras (1927), Hungary
(1929, Nonvay (1928). Latvia (1928). Poland (1931), Siam (1937), and
Liberia (1938).These treaties differ among themselves as to detail but are
generally similar. The las1 two in the group, the treaties with Siam and
Liberia, have more points in common with the treaty with Italy now under
consideration. than do the earlier ones in the group.
For the purpose of more detailed comparison with the treaty with Italy,
the treaty with Nonvay, signed at Washington June 5, 1928 (IV Treaties
(Trenwith) 4527), may be taken as representative of the group enumerated
in the precedingparagraph. There are a fewquite obvious diîierencesbetween
the two treaties. The Nonvay treaty deals extensively withconsular rights.
This is true of most, but no1 al1of the treaties in the 1923-38group. It is
now the nractice of the Deoartment of State to deal with these matters in
rcparalc con\ular r'oni~cnlionr
\luch .;uhjcci.maiicr is comniIOihc iuo ireaiics 3nd ihc si;ind01'ds
treatment established is the same in a larae number of the orovisions. In the
treaty with Italy, however, most of the provisions have been restated with
the object of making them more specific, more explicit, of adapting [hem
more fully to the coverage of situations which experiencehas indicated are
likelyto arise, and of bringing them whereverpracticable in10more complete
accord with United States law and judicial dccisions thereunder.
There follows a tabular comparison of the provisions of the two treaties.
(NOTE). - The statements in the followina tabulation are desiened to
provide guidance to, and to facilitate the consÜltation of, the provi;ions of
the two treaties to which they refer, and should not be construed as inter-
pretations of those provisions.) Subject Treaty with ltaly Treaty with Norway
1. Entry of persons Arts. 1(1.3).XXlV (7).Rights of entry, travel Art. 1 and Additional Article. Provisions
and residence, limited hy reservation coveringomparable, though diiïerently stated.
immigration laws.
2. Activities of persons Art. 1.Rights to carry on specifiedactivities Art. 1. Provisions comparahle, though
on national treatment basis. and to acauire diilerently stated. List of activities sornewh2t
buildings snd Içasr lands for shcified purp;>morArt. XII. Provisions comparable.aty. m
3.cor~orations of uiiiui of nized and access to courts oermitted.recop- i
4. ~ciiviiies of corporaiions Art 11(3).WighisIOcdrr)'on specificdactivi. Art. XII. No comparahle provisions. Activi-'3
tics on national tre~tment hasis. ties of corporations made wholly suhject to >
local laws. 2
5. Participation in domestic Art. Ill (1). Rights to participate in, manageArt. X111.Rights much less extensive than in
corporations and control corporations for anypurpose on ltalian treaty. Most-favored-nation treatment ,
most-favored-nation hasis. Art. Ill (2).Unqual- to participation in domestic corporations, O
ifiedright to participate in,controland managebut right of corporations participated in hy
corporations for specified activities. Art.III (3). to carry on corporate activities whollym
Right for domestic corporations participated subject to the local laws.
in, managed or controlled hv nationals ofother C
party to-carry on specified.activities on hasis z
of national treatment. 2
6. Development of mineral Art. IV. Most-favored-nation treatment with Art. XIII. Most-iavored-nation rights ac- '
resources respect to exploration and exploitation corded for the mining of coal, phosphate, oil,
oil-shale, gas, and sodium on the public o
domain. Z
7. Protection of persons and Art. V(1).Constant protection assured, and Art. 1.General rule as to protection almost$
PropertY rights specifiedfor persons in custody. Protecidentical with that in ltalian treaty, but there
tion also to extend to property of corporations. no reference to rights of persons in custody
National and most-iavored-nation treatment or speciiic reierencc to corporations. No refer-
standard applicable in this suhject-matter. ence to national or most-favored-nation -
treatment. W
(continued on nexr page)(continuedJrompreuiouspaye) -
LA
Subiect Treatv with ltalv ~ ~ p Treatv with Norwav P
8. Expropriation Art. V (2). Right of expropriated person to Art. 1.Rule as to compensation almost iden-
prompt, just, and eftèctivecompensation. Right tical with that in Italian-treatv, but no reference
to withdraw compensation through obtaining to withdrawal of comoensat:ion. No reference
foreign exchange. National and most-favored- to national or most-favored-nation treatment.
nation treatment standard applicable in this
subject-matter.
9. Accessto courts Art. V (4).Freedom of access to courts, and Arts. 1,XII. General rule on access to courts
right to employ counsel. National and most- comparable to that in ltalian treaty. No refer-
favored-nation treatment. ence to national or most-favored-nation
treatment. r
10. Freedom from search Art. VI. No unlawful entry or molestation. Art. III. Provisions comparable with those 2
National treatment as to conditions and pro- in ltalian treaty. 3
cedures as to lawful entry and search. n
II. Acquisition of real pro- Art.VI1(1).National treatment for American No comparable provision. z
perty nationals and corporations in Italy. Rights of >
Italians in US suhject to US laws. ltaly not
required to accord national treatment to citi-
zens and corporations of states that do not
accord national treatment to Italians.
12. Successionto real property Art. VI1(2).If local law bars alien from suc- Art. IV. Provisions similar to those in ltalian
ceeding 10real property, he shall be allowed at
treaty.
least 3 years to dispose of property.
13. Personal property Art.VI1 (3.4). Rieht of dis~osition soecified. Art. IV. Rights as to disposition comparable
and charges and resGictions <O be no lessfavor: to those in ltalian treaty. No reference to rights
able than those applicable in case of nationals. to acquire personal property or to most-
~ost-favored-na& treatment as to acquisi- favored-nation treatment.
tion and disposition.
14. Industrial property Art. VIII. National and most-favored-nation No comparable provision
rights as to patents, trade-marks, etc.
15. Interna1 taxation Art.lx. Nondiscriminatory treatment stated Art. 1.National treatment is specified, with-
in terms related to provisions ofexisting United out exception, except that the national treat-
States tax legislation. Exception for double- ment rule is not to apply to taxes related to the
taxation treaties and reciprocity arrangements. exploitation of waterfalls, mines, and forests.16. Commercial travelers Art. X. Most-favored-nation treatment with Art. XIV. Provisions similar to those in the
respect to customs and other rights and privi- ltalian treaty.
leges.
17. Religiousactivities Arts. 1(2),11(3),XI (1). Unqualified right to Arts.1,V. Provisions similarto those in Ital-
liberty of conscience and freedom of worship, ian treaty, but without referenceto the rights
and to hold religious services.National treat- of corporations and associations. O
ment generally forpersons, corporations, and O
2
associations to carry on religious activities. -
18. Burial of dead Art. XI (3). Right to bury dead according to Art. V.Provisions nearly identicalwith those
religious customs in suitable and convenient in Italian treaty. 2
places.
19. Freedom of information Art. XI (2). Adherence to principles of free- No comparable provision. >5
dom of press and free interchange of informa- m
tion. Freedom of transmission of material to be X
used abroad for publication. B
20. Civil liability lorjury or Art. XII (1).National treatment under laws Art. II. Provisions similar to those in ltaliai
death establishing civilliabilityor granting to persontreaty. d
right of action or pecuniary compensation.
21. Social insurance Art. XII (2).National treatment with respect No comparable provision. 5
to application of certain compulsory insurance O
laws. 2
22. Military service Art. XIII. Nationals of one country within Art. VI. In event of war with third state,
other to beexempt from service inarmed forces, eithercountry may draft nationals ofother who ;;i
or contribution in lieu thereof except when2 have declared intention to become citizens of r
countries are engaged incommon militdry ac- that country, unless such nationals depart
tion, when either may draft nationals of other, within 60 days after declaration of war. O
onèringthem opportunity to serve in ownna- %
~~-~~~~ ~~~-s. r
Art. VII. Provisions generally comparable
23. lmport and export dulies Art. XIV. Most-favored-nation treatment
and restrictions eenerallv as to treatment of articles. national though diReringin some details.
ireatmeit as to application of iaws to persons.
(conrinuedon next page) ,h(continiredJrompreuiouspage) -
Ln
Subject Treaty with Italy Treaty with Norway 0i
24. Quantitative restrictions Art. XIV (4).Total quantity or value to be No comoarable ~rovision. exceot to extent
on imports and exports. imported or exported to be made public. If
quota assigned to one country, other party
must be givenshare based upon representative matter.
period.
25. Customs administration Art. XV. Laws, etc., to be published. Ad- No comparable provision.
vances in rates imposed by administrative au-
thority not to apply to articles en route at time
of ruling. Procedure for appeal from decision
of customs authorities to be provided. r-.
26. Treatment of imported ar- Art. XVI(1).National treatment of imported Art. VIII. Same treatment to be accorded Pj
ticles. articles with respectto interna1 taxation, sale, imported articles as to domestic articles, but
distribution, or use. provision is less specificthan in ltalian treaty. 0
27. Treatment of articles pro- Art. XVI (2). National treatment to be ac- No comparable provision. 5
duced in one countrv bv corded. >
nationals and corporations
of other O
28. Export bounties, etc. Art.XVl(3). National treatment with respect Art. VIII. Provision comparable to that in c
to exoort bounties. customs drawbacks. and Italian treaty. ;
~~ .
warehousing.
29. Exchange controls Art. XVII. Nondiscriminatory treatment in No comparable provision, except to extent
a..lication of such controls as thev affectoro- general provision for most favored-nation
ducts, and nationals and corporations. treatment could be construed to cover subject-
matter.
30. Monopolies and state Art. XVlll (1-2). Fair and equitable treat- No comparable provision, except to extent
trading ment as ta purchases or sales, and purchases general rnost-favored-nation provision could
and salesto be influenced solelyby commercial be construed to cover subject-rnatter.
considerations.
31. Restrictivetrade practices Art. XVlII (3).Harmful effectsof such prac- No comparable provision
tices recognized,and each party agrees to con-
sult with the other regarding such practicesand
to take such measures as it deems necessary to
eliminate harmful effects.32. Entry of foreign vessels Art. XIX. Recoenition of national status of Art. VII. Provision comoarable 10 that in
vesselsofotber. ~ist-favored-nation treatment Ii:iliatredty.eicept that in latter "is\,eli" ir
for vesselsand cargoes as to entry into ports. dclined to inslude publicl) ounrrl xnd operated
vessels as well as those privately owned and
operated.
Art. XX. National treatment of vessels and Art. IX. Provisions similar to those in It~lian
33. Treatment of foreign ves-
sels cargoes. treaty. n
34. lmports and exports infor- Art. XXI. No discrimination between na- Art. VII. Provisions comparable to those in
eign vessels. tional vessels and vessels of other party with ltalian treaty. Z
respect to articles permitted to be imported or 2
exported, and no discrimination in payment of >
bounties on goods imported or exported. Z
35. Loading and unloading of Art. XXII. Each party to permit vessels of Art. XI. Provisions comparable 10 those in
vessels- coasting trade the other to unload portions of cargo al one ltalian trcaty except that in treaty with Nor- 2
port and then to proceed 10 other ports with way, most-Cavored-nation treatment is to be O
remainder. No rights accorded as to coasting accorded with respectto the coasting trade and
trade or inland navigation. inland navigation. *
36. Transit Art. XXIII. Freedom of transit for versons Art XV. Provisions generally comparable to I
and property. those in ltalian treaty. m
37. General exceptions Art. XXIV. The list of exceptions from the Arts. I, VII. The treaty with Norway does
coverage of the treaty as a whole, from the not contain an article dealing solely withexcep-5
most-favored-nation treatment provisions, or tions, as does the ltalian treaty. In Articles 12
from specific provisions of the treaty, is moreand VII. however, there are a number ofexcep-
extensive than in any similar treaty now in tions comparable 10some ofthose in the ltalian
force. treaty. The list is much lessextensive, however.r
38. Waiver of immunities of Art.XXlV (6).lmmunity from taxation, suit, No comparable provision. O
publicly controlled enter- etc., not tbe enjoyed by a publicly owned or >
prises controlled enterprise of one party engaged in r
business in territories of other party.
39. Rights of private enter- Protocol (2). Rights of an economic nature No comparable provision.
prises in competition with enjoyed by public enterprises in business in
public enterprises competition with private enterprises shall, with
certain exceptions, be extended toch private
enterprises. (continued on nest page)(continuedfrom preuiouspage)
tn
Subiect Treaty with ltaly Treaty with Norway rn
40. Territorial scope Art. XXVI. With certain exceptions, treaty Art. XXIII. With certain exceptions, treaty
to extend 10 al1territory under sovereignty or to extend "10 al1areas of land, water, and air
authority of either Party. over which the parties respectively claim and
exercise dominion as sovereign thereol".
41. Adjudication of disputes Art. XXVI. Disputes as to interpretation or No comparable provision.
application of the treaty to be submitted 10
International Court of Justice, unless parties
agree to settlement by other means.
42. Duration and termination Art. XXVII. Treaty to remain in force ini- Art. XXIX.Treaty to remain in iorce initially
of treaty tially for 10 years, terminable thereafter on I for3 years, terminable thereafter upon I year's
year's notice. notice. n
43. Protocol Purpose of the provision of protocol is to There is no protocol to this treaty. .~
clarifyand construe certain provisions oftreaty. O
44. Additional orotocol Purnose ofthe additional a roto cols to relax There is no protocol of this nature attached
to this treaty. 2-
E
war. C
r
> DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 159
OWNERSHIP OF REAL PROPERTY
Senator Tlron~aso/ Lirol~Does this treaty make any significant changes in the
provisions for the ownership of real property?
Mr. Thorp: This makes no significant changes that 1think open up possibility
of criticism. Actually it is one of the most favorable treaties that we know of
with respect 10 the treatment of Ainericans, because nationals and corporations
of the United Siates are to be accorded national treatment in ltaly with respect
to acquisition and holding of real property. This is an unusually liberal provision,
and 1lhink has to be recognized as a real sign of good will on the part of Italy,
because there is no corresponding provision with respectto the United States. In
Ourinstance, this is a matter of regulation by the States rather than the Federal
Government wiih respect to landholding. ltaly does have the righi, if it wishes
to do so, to refuse to accord lhis national treatment to ciiizens and corporations
of someone of the United States if that State denies national treatment to the
nationals and corporations of Italy.
But in general what bas happened here is that Iialy, wiih respect to itself, has
provided full national ireatrneni, and we have had io leave it to ihe States in
terrns of the kind ofreciprocal treatmeni which we will provide.
SenatorLodge: Does ihis go into the matter of exploitation of minerals and
natural resources?
Mr. Broivn: The provision is that we are only obligated to give rnost-favored-
nation treatment.
SenarorLodge: Well now, when you say most-favored-nation treatmerit with
regard to exploitation of minerais j:st how does that work? Can you give me
an illustration?
Mr. Broivn: It would mean that if wegave any righis in the Federal domain
to nationals of another country. we would have to bc prepared io give the same
lems of treatment io an Italian national. Wecould not say to the Iialians, "We
won't let you into Our national domain at al1on any terms. simply because you
are an Italian" if we had allowed a Frenchman or an Englishman to come in.
But we are not obligaied to give them any rights at ail.
SenatorLodgc: We are not? 1can see the justice of ihat. But in none ol'these
treaties are we putting an alien citizen on the same footing as the Anicrican
citizen?
Mr. Broiisn: Not with respect to minerals on the Federal domain.
SenarorLodge: What about with respect to minerals on the State domain?
Mr. Br01i.n:Wecannot do anything about that. Weare committed to the most-
favored-nation treatment only.
SenororLodge: On State-held lands too?
Mr. Broivn: Yes.
SenororLodge: Thank you.
FREEDOMOF RELIGION
SenotorThonlas(;fUt<il~: Preciselywhat are the rights of Americans concerning
freedorn of religion in Italy?
Mr. Thorp: That appears in a number ofarticles in the treaty. Article 1provides
national treatment for natural persons to carry on religious activities. ArticleII160 ELETTRONICA SICULA
provides nationdl ircatmcnt for Amcric~iic<irpor.iiionsand <i~\ociationsto sarr)
on rcli@i<iua~cti\itie~. Article III proiidzr i,>rnaiional irz3tmcnt ii~thre3pcr.tIo
the carrying on of religious activities by Italian corporations if o-ganized, con-
trolled, admanaged by American nationals and c~.~orations.
In Article XI the right if provided, without any qualification or reference to
national or most-favored-nation treatment, that nationals be permitted to exercise
liberty of conscienceand freedom of worship, and conduct religious services.The
only limitation isthat their teachings or practices not be contrary to public morals
or public order.
In the China treaty there is national treatment for natural persons, but the
rights for corporations are somewhat diRerent, and the basis is generally most-
favored-nation treatment rather than the national treatment which is present in
this one.
In Article XII in the China treaty there is a qualified right for Americans to
establish schools for the education of their own children. The rights with regard
to freedom of worship in the two treaties, however, are substantially the same.
Senator Thomas of Utah: In our peace treaty with ltaly there is an article on
freedom of religion and freedom for religions, is there not - Article XIII?
Mr Thorp: That is correct.
Senator Thomas of Utah: What has the status of American religionists been in
Italy up to the beginning of the last World War? Have we had any treaty rights
there at all?
Mr. Barbour: 1 will have to look up the record on the treaty rights, but as a
matter of practice there has been complete freedom in the exercise of religious
freedom.
Senator Thomas of Utah: Throughout al1of ltaly?
Mr. Barbour: Throughout al1of Italy.
Senaror Thomasof Utah: Has there been very much religious proselytising
carried on in Italy, as there has been in Germany?
Mr. Barbour: 1think not.
Senator Thomas of Utah: So that probably il is a provision in the treaty that
will not be very much used, is it not?
Mr. Brown: The right to worship and to educate American children and to
conduct services, and the schools to be attended by Americans will certainly be
used, and is being used, in many parts of Italy. Whether there is likely to be
extensive missionary activity I do not know. The right is there. Whether it is
likely to be used or not 1do not know.
Senator Thomas of Utah: That is new, is it not? Let me know about tbat in
other treaties, will you- whether we had that rig.t in Drewar treaties?
.\Ir Ihrp Therc are no provisions in our prcu~r tre.iiier uith Italy relating
10 ireedom oiconrciencc or uorhhip. Wiih respect ttircligiousa..ti\ ities,Aiitcric.in
ciii7ensucrc ruhie~.tIO Iiali~nIïu. ihere hcing nii irc;ii, prl,ii\ion on thai suhicci
1 might say one other thing, that in thé peace <rialy there is a prov~sion
providing for freedom of worship. The provisions, however, of this treaty would
amplify that a good deal. It would be a question as to whether freedom of
worship, for example, gave you the right to put up a church building and hold
religious property, and there will be a number of things that are collateral to the
right to worship which are spelled out as rights in this treaty, although the basic
principle was established in the peace treaty. DOCUMENTS ANNEXCD TO THE COUNTER-MEMORIAL 161
SenarorThomasof Uiah: That would hold also for educational work: would
it not? You might have a right to teach school, but you might no1 have a right
to build a school.
Mr Thorp: Yes; that's right.
Senaror Thomas of Urah: 1s there anything else in the treaty that deals with
the right ofAmericans Io establish and conduct schools in Italy?
Mr. Thorp: That is covered in the first article in the treaty where, in the lis1of
the types of activities where natioiial treatment will control, educational activity
is included.
Senator Thomas of Urah: So that if ltalians wanted to come here and establish
a school, they could, and if we wanted to go there and establish a school we
could.
Mr. Thorp: They could within whatever were the general principles that apply
to the nationals of Ourcountry.
Senaior Thomaso/Urah: If they meet the requirements of the States, and so
on and so forth?
Mr. Thorp: That is right.
RUSINESSPRACTICES
SenalorThomaso/'Uruh: This treaty, Article XVIII, sectio3, page 17,secms
to make more specificthe reference to the International Trade Organization than
did the treaty with Chinü. 1sthere any significancein this?
ML Braiin: Senator, 1am a little bit perplexed bythe reference. XVIll (3) is
a orovision which savsthat the varties aeree that business oractices which restrain
c8mpetition. limit afcess to markets, orïorce to monopolistic control might have
harmful elïects upon the commerce between the Iwo countries, and that if such
situations arise, there is provision forconsultation and an effort to take corrective
measures. That, of course, is directed at the cartel or monopoly situation and is
one of the subjects which is dealt with in considerahly greater detail in Chapter
VI, I helieve it is, of the ITO charter. 11was thought it would be desirahle Io
have a recognition in this treaty that those activities of private concerns might
have very undesirable elïects and Io provide a mechanism for doing something
about il.
Thegeneral relationship of this treaty with the ITO charter is the same as that
of the China treaty; namely, that the objectives of the two to establish a stable
and orderly basis for tradc relations, commerce relations, between countries are
exactlg the same, and th;it this treaty deals fundamentally with the rights of
versons and coroorations. and the ITO. if it should come into operation, deals
more with the réstrictionson the movement of goods. But there Csno necessary
organic connection between the two of any kind.
RELATIONSHIP TO EUROPEAN RECOVERY PROGRAM
Senaror Thomasof Urah: 1s there any conflict between this trcaty and the
bilateral agreement foreshadowed in the Economic Cooperation Act of 1948?
Mr. Thorp: No, sir. Our legal adviser has informed us that there is no such
conflict.
Senaror Thomas of Urah: Will this treaty help in any way the development of
the European recovery program and the work of the Administrator?162 ELETTRONICA SICULA
Mr. Thorp: 1 think one should say here that they will be supplementary of
cach other. This treaty does no1provide any direct assistance to the Administrator
but it does, we believe, establish a favorable climate or environment for the
revival of trade and for the extension of private investment by Americans into
Italy, andhoth of those are part of the objectives whichthe ECA Administrator
is seeking. So that this should be helpful in the achievement of thepurposes of
his operation.
FISSIONABLE MATERIALS
SenarorThomasof Utah: Article XXIV, section 1,refers to protective measures
concerning fissionable materials. The China treaty did not mention this.
Mr. Thorp: That is entirely because of the fact that the China treaty was
negotiated before the Atomic Energy Commission was organized and before there
was any branch in the Government which had determined on the importance of
a provision of this kind. Thisis a new provision in a treaty. Il has no1appeared
hefore.
Senator Thomosof Utah: Il is put there because we have a Idw, not because
of the chances of thesc materials being found in Italy; is it not?
Mr. Thorp: This has no relationship 10 any special concern about the ltalian
situation or ils supplies. 1 think it is reasonahle to say that this would be a
provision in any treaty which we negotiate with any country from this time on.
SenaturThomasof Utah: From now on; yes.
MOST-FAVORED-NATION TREATMEST
Byway of summary, in what respect does this treaty accord the United States,
first, national treatment; second, a conditional most-favored-nation treatment;
and third, unconditional most-favored-nation treatment?
Mr. Brown: Sir, that is an extremely difficult question 10 answer, because of
the complexity of the conditions and the way they are interrelated. 1think you
could sum it up hy saying that in the first place there are no provisions for
conditional most-favored-nation treatment. There are one or two cases where
most-favored-nation treatment is vrovided for with an excevtion. such as, well,
the exception with respect to treaiies for the avoidance of double taxation.BUI
we do not intervret that as beinr a conditional most-favored-nation treatment
provision. It simply says it does &t apply in this particular case.
You can enumerate a number of cases where there is definitely unconditional
most-favored-nation treatment, such as al1 of the provisions with respect to
customs duties; the access of vessels to ports; the treatment with respect to
exchange controls; the treatment with respect to commercial travelers; the hand-
ling and disposition of personal property; and the onethat wejust discussed with
Senator Lodge, the rights in exploitation ofmineral resources.
In most of the cases, however, in this treaty, the treatment is national treatment
or, as in the case of freedom of worship, given on an absolute basis, without any
reference to national or most-fauored-nation treatment.
1 really think that to attempt a specific lis1of each item would not be too
helpful to the committee.
SenatorThomasof Utah: No; it would not. IIOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 163
PLANS FOR OTHER TREATIFS
We now have hefore us treaties with China and Italy. 1s there any indication
of a well-planned effort to develop such treaties with other countries?
Mr. Thoro: MI. Senator. we are definitelv .nea--d on a oroeram of that sort.
We feel thai it is importani to revis~,to bring up to date, and estahlish, where
there have not hcen such, treaties with other countries, and at the present time
we have outstanding proposed drafts at various stages of negotiation of trealies
with a number of different countries.
Senator Lod~e: About how many?
Mr. Thorp: And whenever we have had the opportunity in connection with
discussions with them on any psrticular specific matter, we have raised the
question of whether we ought not have such a treaty.
Mr. Broiin: There are about a dozen - between 12 and 15.
Senaror Lodge: And they are more or less along this same line, of this same
general nature?
Mr. Brown: This is the model from which we begin, and then we have to make
adjustments, ofcourse, hecauseof the particular situations in particular countries.
But the suhject-matter and the general treatment are basically what is in the
treaties that you have now before you.
But each lime weare able to improve one or two articles. and it is a progressive
process.
Senoror Thonlosof Uralr;Mr.Thorp, do you want togoon withyour sialement.
then, please?
Mr. Tliorp: 1 think il may be helpful to have pulled together in one place a
numher of the points that we have discussed this morning, so if you will pardon
me, 1may duplicate on some of the points, but i( is not a very long statement at
:in? rate
Thc tre;ii) <II'friendship. coolnierce. 2nd nüiigüiia~n uith li~l) rihich the
cammiitee i<nwi, preparcd to coiisidcr ir ihe wïond posiuar ire.iiy of ihi\ iype
>i,liir,hihç Di~n:irtniçni<11St:ilit<nrroti.ited: th31 sith Chinl. ülso hcii~rethe
committee, heing the first. The coiiclusion of these two treaties ripresents signifi-
cant oroarcss in a hroad Drograni which the Deoartment has undertaken with
the obje2ive of expanding andmoderni~in~ this c6untry3snetwork of commercial
treaties. Although there are now in eiïect more than a score of these general
commercial treaties, many of them may he considered as antiquated, several
having beenconcluded in the first half of the lasi ceniury. Many of those of more
recent date are not well adaoted in al1 respects for meeting uresent-day needs
with regard to economic, cult;ral, and other intercourse hetwëen nations. lietween
the United States and a number of countries, including Italy, there are no treaties
of this type now in effect.
11isa happy circumstance that the firstpostwar treaty of friendship, commerce,
and navigation to he made hy the United States with a European nation should
have been concluded with the new ltalian Repuhlic, and that Republicaii Italy's
firstgeneral treaty should be with the United States. Negotiated in an atmosphere
of the most cordial friendshio and based uoon the orinciole of mutualitv. this
treaty confirms Italy's adoption of liberal principles of international eranomic
intercourse, and is evidence of the intent of the ltalian Government to accord
fair and nondiscriminatory treatment to foreign economic enterprise. DOCUMENTS ANNEXED IO THE COUNTER-MEMORIAL 165
industrial enterprises is a matter that is receiving more and more attention, not
only hy the Government departments concerned but by businessmen interested
in foreign investment. The present treaty with ltaly contains provisions designed
to increase the protection usually afforded by a treaty of this type. There is, of
course, the usual provision for the payrnent of just and effectivecompensation
for property taken into public ownership or control. Provision is also made, as
in the treaty with China, for the transfer of the compensation paid to anxpropri-
ated person into the currency of the country of which he is a national. In this
treaty there have been included for the first time, as previously mentioned, some
rules designed to provide additional protection for private investments. In Article
V, it is provided more specifically that in al1 matters relating to the taking of
privately owned property into public ownership or control, the nationdls and
corporations of one country within the territories of the other shall receive
treatment no less favorable than that accorded by such country to its own
nationals and corporations or those of any third country. This clause is, of course,
designed to prevent the alien from heing singled out for unfavorable treatment
in case of a nationalization program.
SenarorLodge: Does that mean that the alien is put on the same hasis as the
citizen, or on the same basis as other aliens?
Mr. Thorp: 90th. He gets whichever is better.
Mr. Brown: Sometirnes, Senator, the citizen gets treated worse than the for-
eigner.
SenarorLodge: You are not in favor of that, are you?
Mr. Brown: No.
Mr. Thorp: If they do that for some other country, there is no reason why we
should not get il.
SenatorLodge: That is not most-favored-nation treatment, is it?
Mr. Thorp: It is both. It is which ever is better.
SenarorLodge: Cive me an illustration of how that would work.
Mr. Thorp: Suppose, let us say, that in a given situation ltaly nationalized an
industry and they agreed to settle for 50 cents on the dollar so far as ltalians
were concerned.
SenarorLodge: With the stockholders?
Mr. Thorp: With the stockholders - 50 cents on the dollar with Italian
stockholders, but felt that because, we will say, there were some very important
citizens of a third country involved in this, and they did not want to get into
trouble, they would pay them off at 100 cents on the dollar. In that case we
would insist that we be given the full 100cents on the dollar, hecause that had
been done with a third country.
Oftentimes it works the other way around - that the nationals of a given
country willbe treated more favorably than the aliens because, shall we say, their
political strength may he a little greater with the country, and in this case, if it
weremore favorable treatment for the nationals, wewould getthe more favorable
treatment.
This is irrelevant in the United States, hecause in the United States there is no
differential treatment at all. If we nationaliz...roDertv,the owner is entitled to
court protection and a determination, if necessary, hy going to the courts, of
what he will he paid in connection with the expropriation, quite regardless of his SenutorLodge: So this is a one-way proposition, is il? It works insofar as Italy
is concerned.
Mr. Thorp: It happens that we already have a procedure here which would
identifv national treatment with the treatment of the alien, and what this does is
io bri& Italy, shall we Say, up to that same standard.
SenororLodgc: In this country, if the Government takes something it condemns
it. as 1understand it, and pays damages to the private person from whom the
thing has been taken. Does that not hold true in Italy?
Mr. Thorp: Yes; this does not change what happens today in Italy. ltaly has
the same basic principle with respect to nationalization and condemnation ihat
we have. But we have discovered that there is some tendency ihroughout the
world for differential treatment to develop, and it seemed just as well to establish
the principle in the treaty, although, as 1 Say, il is not a new principle that is
esiablished here. This is confirming by an international agreement an established
practice in both countries.
ScncirorLo<l,e: Thank you.
.tir Tliorp In :iddiilonIO ihe d:ingcr oi hting cxpropriatcd. a \criou> danger
Iarcd by Amcricsn prii,liic cnterpri,~ ahrtvad is ihai of king siibjccicd lu unhir
competition from staie owned or controlled enterprises. In ihis treaiy, an effort
is made to deal wiih this problem by providing'that, with certain exceptions,
special favors granted by one country to ils publicly controlled business enter-
prises shall be extended also to the private enterprises of the other in situations
in which ihe public enterprises operate in fact in competition with private enter-
prises. Somewhat relaied to this provision is another which provides that no
publicly owned or controlled enterprises of onecountry, if it engages in business
activities within the territories of the other, shallaim for itself or ils property
immunity from taxation, from suit, from execution of judgment, or from any
other liability io which a privately owned or controlled enterprise is subject
therein.
COMPARISON WlTH CHINA TREATY
There are a fewsubjectsdealt with in the treaty with China that are not covered
in the treatv with Italv. Thcre are no orovisions here dealine with the recention
of diplomahc representatives, the recognition of agreementsand awards in corn-
mercial arbitration, the protection of literary and artistic property, and adherence
to a program designedto expand international trade. These matters are dealt
with in Articles 1, VI, IX, and XV, respectively, of the treaty with China. The
first and last of these subjects are not considered as of consequence in a treaty
wiih Italv. As to commercial arbitration. as 1 have alreadv said. the ltalian
negoliatirs felt thai the provision which we had included in the China treaty was
not well adapted for application under ltalian law. As to copyright matters, the
twoGovernments concluded that their relations, based upon proclamations issucd
under their respectivelaws in 1910,were satisfactory and that no treaty provision
would be necessary.
A numbcr of provisions in the treaty with ltaly have been restated in language
somewhat diiTerentfrom that in the treaty with China. The objective has been
io clarify the Ianguagc or to make the provision more explicit. Examples are the
article relating to interna1 taxation- Article X in the China treaty. 1X in the
treaty with ltaly- and the article relating to exchange controls- Articles XIX
and XVII, respectively, in the Chinese and Italian treaties. There are, or course, DOCUMCNTS ANNEXED TO THE COUNTER-MEMORIAL 167
a number of minor diwerencesin phraseology and even in substance between the
two texts that have no1heen referred 10above.
NEEDFOR THE PROTOCOLS
In negotiatingthetreaiy with Italy, it wasnecessaryto givespecialconsideration
to the grave economic situation facing ltaly as a resuli of the war and the present
inability of ltaly to supply, unassisted, the minimum needs of its people or the
minimum requirements of economic recovery. Accordingly, there has been at-
tached to the treaty a protocol, the purpose of which is to relax under certain
conditions some of the rules of the treatv, such as thosc relatina io ~uantitative
rcsiriciiun~on imporij and rrporis. in or& i<icnablc 11ü1)iu proieci ils inierna-
iional-pdynienii piisiiion and ohiïin ihr r.sscnital nrcdi oiccununiic rcso\sry
Thc I>eparimcni of Stalc rïrdrds ihij Ircüts as 3 \,cru Fii,orablr onç from ihe
standpoini of American interests. Prompt raiification would not only have the
effectofaliording immediate treaty proteciion for American inierests in ltaly but
would also further sirengthen Our cordial relations with ihe Government and
people of Italy. The announccment of the signature of the treaty on February 2
was particularly well reccived bythe ltalian press and public. Approval of the
provisions of this treaiy by the Senate will provide the Department with an
accepted standard which will afford necessary guidance in procecding with the
negotiation of treaties with other countries.
Senaror Thomas tf Ulah: Thank you, Mr. Thorp.
1s Mr. Egan here? Will you please state your name and your address, and
whom you represent?
STATEMENT OF RICHARD M. EGAN, GREAT LAKES CARBON
CORP.. NEW YORK CITY
Mr. Egan: Richard M. Egan, Great Lakes, Carbon Corp. I am foreign sales
manager of Great Lakes Carbon Corp.. New York City. 18 East Forty-eighth
Street. 1have had some exnenence in Italv. havine been there for the ereater oart
of2 years and having had'my faniily thérefor aiout a year and a half.
1thouaht I would take this opportunity to answer a few questions, mainly, if
they werë to be put to me, to-;ive you-a busincssman's version of the peace
treaiy, just from observation. 1 am not an expert, and 1 reprcsent a Company
that has done a fair amount of business with the ltalian Government and the
Italian people, and we are still doing business with thcm, and we have a great
interest in the future of Italy.
So Faras the peacc treaty is concerned, we are of the opinion thai ilis a good
treatv. There are a few thines that we feel mavbe could be imoroved. so far as
the people'>fuiurç isconccrncd . bui so far as hu.incss opporiuniiics ior Aliier~can
bujinii$. I am convinccd ihai iiis3 ~OOJlrei11y.
Senator Thomasof Urah: That is the treaty that brought about peace. Now
tell us what you think about this commercial treaty.
Mr. E~un:Thecommercial treatv isvervsatisfactorv for theAmerican biisiness-
nidn I se2 no ~,h~t;i:les.Su iar as itic li.ili:ire:onccrneJ. I ihink tlicii oppor.
tuniiics under ihai ircdi, .ire \Cr\ \atisf,icior\. WCh.i\c ni;i,ls>iuJv rii'i.ind
we have seen no ohstacies.
Senoror Thomas o/ Utuli: In other words, you feel that this is a constructive
move on the part of Ourcountry to enter into this treaty with Italy? DOCUMENTS ANNEXEU TO THE COUNTER-MEMORIAL 169
SenarorThomas O/ Urah: Do you have any questions?
SenarorLodge: No.
SenarorThomasof Urah: Thank you very much, Mr. Egan, for coming.
Mr. Blaisdell. Have you a statement, Mr. Blaisdell?
Mr. Blaisdell:1have a brief statement, Senator, which 1am prepared either Io
present orally or to present for the record, if you wish.
SeriarorThonlas of Urah: 1think we would like to hear it, if wemay.
STATEMENT OF THOMAS C. BLAISDELL, JR., ASSISTANT TO THE
SECRETARY OF COMMERCE FOR INTERNATIONAL TRADE
Mr. Blaisdell:The treaty before you will fonn a comprehensive legal hasis for
carrying out our commercial relations between the United States and Italy. It is
intended to replace a previous treaty of friendship, commerce, and navigation
concluded with Italy in 1871 following the unification of that country. The 1871
treaty was tenninaied hy mutual agreement on December 15, 1937,and subse-
quent efforts to work out a more modern and comprehensive treaty prior to the
war proved unsuccessful. A temporary commercial agreement of "modus vi-
vendi". was eîïected in December 1937bv an exchanee of notes siened in Rome,
but it is no longer recognized aslegally operative hyihe present lialian Govern-
ment. Italy bas voluntarily continued to provide most-favored-nation treatment
with regard to customs dulies. However, we urgently need an agreement on many
other matters if we are 10 have a satisfactory legal framework for commercial
relations between the United States and Italy.
TRADE WlTH ITALY
Our trade with ltalv issubstantial. It decreased considerablv duuine the inimedi-
ate prewar period because of the depression, and the self-sufficiencypolicies of
the prewar ltalian Government. Sincethe war Ourexports to Italy, at least, have
reached levels. incurrent dollars. far in excessof those of the 1920s.United States
cspori, ta)1131yi.n 1946.lmounted IO$?27.l)iJIJ.O0ISsiimpnrcd u~ihan a\,c.r.ige
of onl) S18S.UU0.1~0 i0 ihc siirly 1920%2nd SSS.OM).OOiini 193a Imporii froni
ll.il\in thai \edr >mounicd IO Sh9.000.UOU 2, ccimn~reduith $70.000.001iin ihc
ear& 1920sand $41,000,000in 1938.1" 1947,our éxportsto ltaly had inrreased
further to $479,000,000while our imports from there decreased to $44,000,000.
Althoueh the laree United States exnorts to Italv durine 1946 and 1947 have
been pnmarily made up of shipmentS under the Gd programs, there has been a
substantial flow of commodities of a type which will probably continue to be
sbipped from this country to ltaly in the~yearsto come.and Io be handled more
and more through ordinary commercial channels.
The treaty under consideration is the first comprehensive commercial treaty to
be concluded hy the United States with a European country since 1934and the
first treaty of its type signed by ltaly after the war. Its early ratification would
help stahilize Ourpostwar commercial relations and he a further step in recogniz-
ing the efforts of the ltalian Republic to establish itself firmly in what we cal1a
democratic way of lice.
The treaty represents acceptance by republican ltaly of a number of democratic
principlesin trade and navigation. The "national" treatment accorded to corpora-
tions, forexample, is the most liberal ever specifiedin any treaty entered into by
the United States.170 ELETTRONICA SICULA
The treaty is based in general upon the principle of mutuality, and establishes
standards Io eovern the relations between the two countries in manv fields of
activity.It indudes articles relating to the status and activities of përsons and
corporations, protection of persons and property, landholding, freedom of infor-
mation, treatment of vesseis. and commercial ~rinci~les such as those in the
priipared chartcr Ijr thc Internarionlil Trdc Or?~iii~xti.>n. ;is\<ela.;pr,ivistiins
zonccrning iuch niditers Ir c\ch~ngc :r.ontrol.transit. and industridl propcrtiei.
The treatv is not a trade agreement and contains no soecificoblieations as to
import or éxport treatment of any individual commodities. It dois recognize
modern developments in import and enport regulations and exchange controls,
and seeks so to condition their aoulication as Io orovide, in accordance with
basic American policy, the utmoi; possible freedÔm for the pursuit through
ordinary private channels, and on a nondiscriminatory basis, of commercial and
cultural relations.
In this connection, special attention should be drawn to the second protocol,
which relates to the acceptance of certain quota and exchange restrictions neces-
sarv to meet the snecialcommoditv and foreirn exchanre shortaees of the Dresent
reconstruction pe.riod, but even Cheseexcepcons are carefully Circumscr~bedso
as to protect the legitimate interests of Americans transacting business with or
in Italy.
In drafting this new treaty with Italy, numerous additions and changes were
made to and from the original 1871 treaty which the two Governments had
agreed in 1936 was "antiquated and inadequate to meet modern conditions".
Conditions have undergone further considerable change since that date.
NEW CONDITIONS
Treaties of friendship, commerce, and navigation have traditionally included,
as the committee well knows, provisions relating to entry and residence of
individuals, the protection of persons and property, the tenure and disposition
of real and persona1property, religious activities,customs administration, transit
riehts. and the treatment of shinnine. Provisions of this character have been
included in the new treaty. In addiiioa numerous recent economic developments
of whichwemust take account inour commercial relations have made il necessary
to exnand Our traditional Corn of treatv. These include such thines as the-
development of the corporation inal1of its modern ramifications, thedevelopment
of workmen's com~ensation and other social insurance laws. and the spread of
certain philanthropic, educational, and cultural activities. Since the war'we have
been additionally confronted with major changes in the use of import and export
quotas and licenses, exchange contr6ls, and stÿte trading with which we mus1
deal. The new treaty takes account of al1of these developments, taking care, as
1 have already pointed out, to minimize the impact of any restrictive practices
upon the future development of free, private, international commerce.
Let me outline, briefly, a few of the major provisions of the treaty in which 1
think you will be interested.
With regard to customs duties and charges on imports and exports and the
formalities of customs clearance, most-favored-nation treatment is mutually
granted. With regard to the taxation, interna1 sale, and distribution or use of
imoorted eoods. national treatment ~s ~utuallv eranted. This means that while
L . -
liai!nia? la) doun rcgul~tioiir icir ihe mo>tcifczti~cdistribiiti~inand use \\.iihin
II.horders oiimoorted :<~ninioditic> II siln<itJi,~.riiiiin~tc.ia;iiiiii imports Nom
the United ~tatei in favor of those from any other country. ' DOCUMENTS ANNEXE!> TO THE COUNTER-MEMORIAL 171
Another set of nrovisions relates to the settine of imoort and exo. ~.urohibi-
tions or quot3s. Again most.flivorcd-nlition or nondisçriminaiory tre;iimcnt is
stipul~ied. When quantiiati\e resiriction. are impored through quoiar. Iicenses.
or-other measuresi the treaty requires that, as a general ruie, public notice he
given of the total quality or value pcrmitted to be imported, exported. sold,
distributed, or used,during a specifiedperiod. In line with thislas1provision, the
Officeof International Trade is alreïdy publishing, wherever practicable, c<iuntry
quotas for United States commodities in scarce supply which arc under cxport
control. This, Senator Thomas, is the provision of Our officein the Department
of Commerce in our trade with Italy and other countries.
It is further specified in the treaty that if either party allots to any third country
a share in the total quantiiy or value of any article in which the other sigiiatory
has an important interest, il shall, as a general rule, allot 10this other signatory
a share based upon the proportion of the total supplied to it hy, or exported by
it to, the other during a representative period. This provision was originally
incorporated in the temporary 1937 agreement, and was designed to deal with
the discriminatory channeling of imports and exports practiced by ltaly and
Germanv before the war. To meci the oresent-dav needsof Italv, which issuterine
from crilici~lshortages oidollar<. thc'srcond pr;~toiiil perniiti in the ~pplicaiio~
ofthi' prowsion a tcmpor.ir! Iaiiiudc Under [hi\ prutoiul the paragraphr of the
treatv providina for most-favored-nation treatment will not apply to quantitative
restriciions whih dace temnorarv limits on the freedom of exfhanee'ooeriitions
-.
in J >:arcs cLrrenc). or tu iemporar! exch;ingcre\triciions required in thr pti\tuar
irünjirion.tl pcriod on pa)mcni, and ir;insicr. ii~rcurrsni interna1ion;il irm..i:-
tions. The parties are also given le;ive to a..l. such quantitative restrictions as
ire nciess;i;) Io secure. duri& thc erl!. po\t\i.ar transitjonal pcriod. the eqiiiiahle
diitrihuii<inofgoods in .hori ~uppl), or ru use aicuniulatcd inconi'ertibleciirrcn-
cies for the purchase of imports. In the latter case, advantage can be taken of
the protocol only if il is in fact necessary to restrict imports to protect monetary
reserves or to yield a volume of imports othenvise impossible. All exchange
restrictions. moreover. must be in accord with applicable provisions of the In-
ternational Monetarv Fund agreement.
Other provisions are designGdto protect the competitive position of American
enterprises in thcir dealings with state trading companies, to assure fair and
equitable treatment in the award of concessions and other contracts, and to
encouraee the futureconduct of businesswithin hoth countries alone comnetitive
nonmo~polistic Irncs.There are further provisions, relating to many ficets of
commercial operation and the ownership, transfer, and use of property which
specify treatment according to the mosï-favored-nation andior naiiokl prin-
ciples.
I do not propose 10 burden the committee by discussing al1 of these various
provisions. Mr. Thorp has covered that. However, if 1can add to what 1have
already said, 1will be glad to answer questions concerning these.
INTERNATIOSAL TRADE PRACTICES
Senaror Thomasof Urah:A general question, first of all: You are dealing al1
the timc with these prohlems and have heen through the International Trade
Conference and the rcst of ii. Do you think there is any hope of overcoming in
international trade the practices which were developedby those nations before
the war, channeling trade entirely to their own advantage?
Mr. B/aisde//: Scnator, if 1did no1 bclieve that that were possible, 1would not
be doing what 1am doing now. 1am convinced that this is the objective that we172 ELF.TTRONICA SICULA
should be driving toward al1 along. That might sound strange 10 some of my
exoorter friends who areon mv shoulders most of the~ti~e~ ~ ~ ~----... of the exoort
controls which we adminisier ;n the Department of Commerce, but 1ass~re'~ou
that il is a very sincereconviction that the kinds of reeulations whicb we are now
usinc!to a limited extent in the United States. to a Geater extent i~ ~racticallv
al1furopclin couniries and in mliny oiher counirici of the uorld. are functio"
of this pliriicullirperiod in i~urecononiicdcvelopment. when ihe uorld isscriously
disrupied from thç condiiions ihai Jei~elopcdduring the uÿr. The derclopmcnt
of ii~Ratianaryrnoneiary polictes.which 1sworldwi\lr. and we arc not ehcluded
from ihai - h3s crcated conditions oi demïnd in internati<inlilirlide which are
entircly unusu31.The\ arc of an eniirrly dilferent characier ihan the direcii\r and
inhibi<orypractices which were used, and for which the same instrumenis were
used, prewar. They arise from diiïerent conditions. And the United States has
taken the initiative in a great many cases and has thrown al1the support of ils
~eo~leand its Government aaainst the develovment of these oractices wherever
;t~i'~ossible Ithlis plliscdli k~,?iorp~ri in ihc'dc\cl~ipment ut ihe Intc.rn.iti~inlil
?Aonerar! Fund and the Intr'rn.ttional Hink and the Intr.rn:ti,on;ilTr.iJc Organ.
ization because we have believed that throuph these deviceswe would eventually
be ablc to gel to a point whcrc the restricti&s that are now burdening trade cak
be gottcn rid of and private trade can proceed with as little interference as
possible.
SenarorTliomasof Utah: 1s there any place in the world where there is any
free money today?
Mr. Blaisdell: 1do not know of any place. 1do not know ofany country. Even
the United States has limitations on the use of gold.
Senaror Thomas of Uroli: Yes. Wehave quite a bit of it hidden away. 1think.
We are iold we have. 1hope it is still there.
Wehave not in the world ioday anything equivalent to the old Austrian dollar,
and then the old Mexican dollar, which had a way of keeping value and going
places and doing things, especially when our Government was set up, have we?
There is nothing like that anywhere, is there?
Mr. Blaisdell: 1know of none. 1think the las! remnant of thai, Senator, was
the Chinese silver unit. which was never coined.
MONETARY PROBLEMS
Senutor Thomlis O/ Uruh: 1do not mean free trade in the political sense, but
can you have free trade in the world without free money?
Mr. Blaisdell: 1do not think so.
SenaiorThomus Uruh: Neither do 1,and 1am wondering if WC are starting
at the wrong end in these trade arrangements. 1s there anyone thinking about
money in the world today? Did not the Germans teach us a lesson about control
in such a way that we have not yet gotten over il?
Mr. Blaisdell: 1 think there is a growing recognition of the significance of
monetary and financial factors in this whole problem of trade relationships.
SenarorThomasof Utah: They are beginning to see il?
Mr. Blaisdell: I think so. In fact, 1think in connection with this treaty il would
not be oui of the wav . .ooini out ihat the verv existenceof the orotocols. besides
the trcai! itself. is a rccogn~iionof someihinp ter! iundlimenilill) irrong in the
monctary rclxiionships tliii c~ist. ihai uiihout ihr dr.\clopment oi silihil17cd DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 175
World War1drajr
The Selective ServiceAct of 1917,enacted soon after this country became
a bellieerent in World War 1. made liable for militarv service "male citizens.
or m& persons not alien &nemieswho have deciared their intention 10
become citizens" (sec. 2,40 Stat. 77 and 78).
Thus al1aliens who had not declared their intention 10 become citizens,
that is, nondeclarants, were exempt. This legislation was amended in 1918
by the addition of the following proviso:
"Provided,That a citizen or subject of a country neutral in the present
war who has declared his intention to become a citizen of the United
States shall be relieved from liabilitv to militarv service uoon his makine
3 declaration. in accordancs with &ch regulat;ons 3s the'Prcsidciit nia).
prescribe. iiithdrawing his intcniion to tiecomc 3 citizen of the United
States. uhich shall ooeratc ;ind be held to cïnsel his drrlarïtion olinten-
lion t6 becomean ~kerican citizen and he shall forever be debarred from
becoming a citizen of the United States" (40Stat. 885).
Under this amendment neutral declarants also were exempt from niilitary
service provided they gave up the privilegeof becoming citizens.
Following World War 1a number of commercial treaties were concluded
containing military-serviceprovisions generally comparable 10the following
in the 1928treaty with Norway:
"Article VI
In the event of war between either High Contracting Party and a third
State. such Partv mav draft for comoulsorv militarv service nationals of
the other havinia &manerit residencewithin its tcr~itoricsand who have
iormïlly. acsording to 11slaws.declared 3n intention idadopt ils national-
ity by naturalization, unless such individuals depart from~theterritories
of said belligerent Party within sixty days after a declaration of wsir."
World WarII dra/i
The SelectiveService Actof 1940,enacted before the United States hecame
a belligerent in World War II, made liable for training and service "every
male citizen of the United States, and every malealien residingin the United
States who has declared his intention to become such a citizen" (sec.3, 54
Stat. 885).
This was comparable to the 1917law before its amendment.
A few days after the United States became a belligerentin World WarII
this 1940 act was amended so as to make subject to training and service
"everymalecitizenof the United States, and everyother maleperson rzsiding
in the United States .. .,ProvidedThat any citizen or subject of a neutral
country shall be relieved froni liability for training and service under this
Act if, prior to his induction into the land or naval forces, he has made
application to be relieved from such liability in the manner prescribed by
and in accordance with rules and regulations prescribed by the President,
but any person who makes such application shall thereafter be debarred
from becoming a citizen of the United States" (55Stat. 845).
Thus the basis for exemption was changed, and throughout the war it
remained whether thealien was anational of a neutral rather than a cobelli-
gerent country. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 177
to cruel and unusual punishment for American citizens. The obligation of
military service is especially closely associated with the idea of national
loyalty. The American who goes abroad in the interest or American foreign
trade, of world economic development, of international cultural cooperation
should no1 be ohliged hy any policy of this Government to abandon his
primary loyalty to the United States. 1f foreign governments follow the
practice of requiring an oath ofallegiance from conscripts (as in the United
States, under pain of severepenalties). a policy of allowing Americans 10be
conscripted abroad would bea policyof sanctioning the involuntaryexpatria-
tion of American citizens. It is no1 believed that the United States should,
lbrough a policy of impressment, in effect force citizens of any country to
divest themselves of their nationality.
Senaror Thomas of tirah: You remember that in the First World War everv
Japanese in the unitGd States answered Ourregistration questions the same. ~he;
was in the United States Supreme Court at that time the case of Osawa. 1think
it was.a case onnationalitv.citizenshi~ and the rest of it. And when we reeistered
the Japsne'e. thc ~a~ancscansuered in such a way as to stand for iheir nght. as
thcir aiiorneyb ucre arguing their case. before the Suprsmc Court. Noihing came
of 11e.tceriting th31 But al the rame lime. if there had ben a silusiion of ihis
kind, ilm.ighhthavedone some damage to some Americans in any country where
they have compulsory universal training al al1limes.
Mr. Brou,n: 1 think we were thinking primarily of the point that Mr. Thorp
raised, that we did not want to be in a position where any American citizen
would have been compelled to serve military training in Italy.
Senaror Thomas of Utah: And 1do no1 want to he in that position either. If,
for instance,Ourpractice becomes universalmilitary service,1surely do nnt want
to have a treaty that if we happen to go somewhere else military service in some
other countries would he ours.
Mr. Brown: This treaty would protect us against that.
SenarorThomos O/ Utah: 1do no1 know whether il will or not.
Mr. Broiun: 11specificallysays -
Senaror Thomasof Urah: It says that: I know. 1 am jus1 frightened that it
brings complications into the even tenor of Our ways, where we have never had
any problems until that one came up.
1sthere anything else?
Dr. Wilcox: That is all.
Senaror Thomas of Urah: Thank you al1for coming. Wewillhring the hçarings
to an end.
(Whereupon the subcommittee hearings were closed.) ELETTRONICA SICULA
Document30
[Itulianre.rnor reproduced]
MINISTRYOF THE INTERIOR OFFICE OF THE MlNlSTER
TO WHOM IT MAY CONCERN
This is to certify that before the entry into force of the Presideniial Decree
No. 1199of 1971(which not only made it opiional Io suhmit appeals through
the hierarchy, hui eslablished the principle that the absence of a reply to an
appeal lodged with the public administration within 90 days OCthe matter giving
rise to it signified rejection) the average time taken Io examine appeals used to
be about one year.
The lime could be further reduced if the parties rcquiring a prompt reply used
the "Diffida" (=intimation) nrocedure nrovided bv seciion 5 of Law No. 383 of
22 Junc 1987. (InitiaIlcd by the Chef de Cabinet). DOCULIENTS ANNEXED TO THE COUNTER-MEMORIAL 197
Document 31
ExCERPTS FROM THE DEC~SIO ONF THE BOARD OF DIRECTOR REGARDlNG THE
MERCIZ (IFELSI S.P.A. WITH SELlT (1965)
(Iralion test nor reproducedj
(Omissis)
Raytheon-ELSI S.P.A. is the registered holder and owner of al1 1,300,000
shares for Lire 1,000 each, making up SELlT share capital; the mergcr shall
result in the annulment - without replacement - of the said shares, and will be
carri~- out once the mere.r deed has~ ~~~~drawn uo.~
(8)(Onrirsfoti~in order to 3!311them<l\,es - Corthc mergcr enrisaged by the
prcscnt resolution. airncd a1 upgrailing K~ythson-EI.SISpA 'sindu,tnal acti\ity
In S<iuthcrnIial) - of thet3~ relieiprovided iorin thc erirting Icgisl;iii'orthc
indujtri~111~tioonf the South.or in rcgiiin:ilIhur. and inp;irticiilariifthe provisions
under Article 38 of ldu N,I.634, d;iid ?<)July 1957.2nd of thc proii,irin: undzr
Iau ! of ?(lMarzh 19'0. and of l:iu No SI of 5 Aurusi 1Y57
(9) To confer power of attorney upon the Chairman oTthe Board of Directors,
Professor C. L. Calosi and the hlanaging Director, Eng. Aldo Profumo, also
severallyand (oniissiori)
(5) Resoluriot~on the raking out of a loan/rom Banco di Sicilia and relevanr
poiver of ollornej,: The Chairman reports on the negotiations under w;iy with
Banco di Sicilia for the taking out of a soft mortgage loan amounting to one
billion and five hundrcd million lire, and calls upon the Board of Directors to
consider the matter, conferring the appropriate powers of attorney and rights in
connection with the taking out of said mortgage.
The Board, after a lengthy debate - with the favourahle opinion of the Board
of Auditors - decides Io severallyauthorize Professor Carlo L. Calosi (born in
lntra on 25 September 1905).the Managing Director Eng. Aldo Profumo (born
in Genoa on 15October 1917)and Accountant Nicolb Fiandaca (born in Agri-
gente on I February 1926),acting in their capacity of legalrepresentatives of the
Company,10take out from Bancodi Sicilia- Division forCredits to lndustries-
a loan amounting to lire 1,500,000,000(one billion five hundred million), to he
paid over a five-yearperiod, under Article 5et seq. of regional law No. 51 dated
5 August 1957, interest rate of 4 per cent and accessories, correlated by the
securitiesenvisaged in Article 12,las1but one subparagraph, of the said regional
law No. 51 of 5 August 1957, as well as by the suretyship of the associated
"Raytheon Company" of Lexington, Mass. (USA), for 50 per cent of the whole
amount of the loan.
The Board subsequently and severallyauthorizes them to enter into the mort-
gage contract with the Division for Credits Io Industries of Banco di Sicilia,in
the name and on behalf of the said Company, conferring upon them for this
purpose the widest powersand riglits(suchas the right IO grant lienand mortgage
on al1 the Company assets, for an amount to be determincd by the above-
mentioned Division, incurring - on behalf of the Company - al1the expenses
of the relative contract or relevant to il), on the basis of terms and conditions to
be requested hy (omission).
(omissis) ELETTRONICA SICULA
Document32
Nom AND COMMENT CONCERNING THE BOOKS AND THE DOCUMENT ASTTACHED
TO THE PETITIONIN BANKRUPTCY'
(Iialian resr not reproduced]
Raytheon ELSI S.P.A.
NOTES AND COMMENTSON THE BOOKS AND DOCUMEKTS A'ITACHEDTO THE
BANKRUPTCY PFTITION
(A) InvenroryBookNo. 3
Note: (1)books No. I and No. 2 are kept at the company plant premises in
Palermo and are currently requisitioned by order of the Mayor, Mr. Giuseppe
Polizzotto, who was given the task of getting them, was prevented from doing
so by a certain Mr. Riccobono, who claimed that the books could no1be removed
without the Mayor's approval. At the request of a member of the company
management, Mr. Maggio, the Mayor's substitute during his absence, refused
permission to remove the books (sec attached declaration).
Note: (2) the book produced contains the inventory as at 30 September 1966.
The inventory as at 30September 1967,which should have contained the balance
shect approved on 20 March 1968,had not yet been transcribed inIo the book,
the legal period for doing so having expired on 27 June 1968.
Note: (3) the information concerning the inventory as at 30 September 1967
can be found in the balance sheet as at 30 September 1967and related annexes.
(B) GeneralLedger
Note: (4) this book contains annotations from 15June 1967to 30 Scptember
1967. Annotations prior to the date of 15 June 1967 are contained in other
volumes of the General Ledeer current keot in the reauisitioned olant. and for
which~the remarks made inv& (1) abGe also appG. It was not possible to
make any annotations after 30 December 1967 because of the succession of
circumslances that occurred to prevent this: the Christmas holidays, the earth-
quake, a strike with the occupation of the plant by the employees and, lastly, the
much publicized requisition order.
jC) ClienrsLedger
Note: (5) this book contains the annotations from II March 1967 until 29
December 1967(sec preceding note).
(Dl SuppliersLedger
Note: (6) this book contains the annotations fro28 October 1966 until 30
January 1968 (seepreceding notes).
' For anEnglishtranslatior the petition.see Mernoorthe UnitedStatesAnn.
43. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 199
Document 33
TELEX NO. 57012Or:6 APRIL 1968FROMTHE MAYOR OF PALERMO TO AVVOCATO
Nico~d MAGGIO AND DR.ARMANDO CELONE
[Iialian iesi no: reproduced]
Messrs.Dr.Armando Celone
Avv. Nicol6 Maggio.
In mv caoacitv of Government Official. havine issued on 2.4.1968 an order
requi\it;oning ih; plmi ouncd by ~a)thcon.~l.S.p.A.. I appuini )ou as my
reprcsentatii,cs and cnirusi )ou uilh the taik of ensuring ihc eiifor~mcnt of the
orders and provisions already issuedor stbelissued, giving me daily reports
on the management activities pcrformed the special appointee Ing. Aldo Pro-
fumo who, in his turn, shall be obliged to request your prior approval for the
measuresto take in the fulfilment of the management tasksconferred upon him.
Ref.57012
6 April 1968
Municipality of Palermo
Certified copy
Palermo 27lune 1987
Deputy Secretary-General
(Signed)Avv. NicoloMAGGIO. ELETTRONICA SICULA
Document 34
TELEX NO.56812 OF 6 APRIL1968 FROMTHE MAYOR OF PALERM OO INGEGNERE
PROFUMO
[Irolion rexrno1reproduced]
Ing. Aldo Profumo
General Manager
of Raytheon-ELSI 3.p.A.
Palermo.
Pursuant to the requisition order of 2 April 1968,of the Raytheon-ELSI S.P.A.
plant. 1entrust you with the management of the said plant in order to avoid any
damage to the equipment and machinery due 10the ahandonin- of anv activity,
includingmaintenance.
Furthermore, 1order that an inventory of the plant assets be drawn up, with
the assistance of Dr. Giuseppe Marsala, Notary Public, and on the basis of the
rehuttal of the legal attorneys representing Raytheon-ELSI S.p.A.. who areto he
notifiedof the date of the beginningof the operations or which you are in charge.
1 inform you that 1 have appoinied Dr. Armando Celone and Avv. Nicolà
Maggio as my proxies, and 1have entrusted them with the task of ensuring the
com~liancewith the Drovisions1have issuedor whichare still to beissued.
As my proxy. thercfore. )ou uill rcque\i the pnor appufihe persiini ~.iied
ah0t.e for ihc actititake in ihc fulfilmeoithe mïnagcnieni i~isksyou have
been entrusted with.
(Signed) BEVILACQUA.
Ref.56812
6 April 1968.
Municipalityof Palermo
Certifiedcopy
Palermo 27June 1987
Deputy Secretary-General
(Signed) Avv.Nicolà MACCIO. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 201
[Irnlian rextnorreproduced]
Palermo, 16April 1968.
Dear Mr. Silvio Laurin,
In view of the continuing absence of Mr. Profumo to whom the management
of the factory had been entrusted followine attachment. 1 herebv amoint vou as
his temporary replacement with the same powers, functions and iim;tations:
You have been chosen because of the need to ensure total compliance with the
orders 1have issued,and the need for the management activitiesto beCO-ordinated
and the interests of Government and the rights of third parties are properly
protected.
Your duties arc particularly appropriately connected with your functions and
responsibilities as Security Officer,and this is a warranty against any interference
with militarv securitv reauirements.
~ ~ ~ ~ ~ , 7~ ~ ~ ~ ~~
In thekfformance of your duties, you shall report to my deputies and person-
ally to me on any matter relating to the activity and running of the factory and
you shall assis1Notary Public Marsala to begin the inventory operations today.
(Signature illegible.)
Municipnliryof Palermo: This is to certify that this is an authentic cop) of the
original. Palermo, 27June 1987. ELETTRONICA SICULA
Document 36 '
RAYTHEON ELSI S.P.A. - PALERMO
Technical Report on the Management of the Pre-lnsolvency Period 1965-1968
1.Hisrory - OrgonizorionCharr - Directors - AccounringRecords
In 1954Elettronica Sicula S.P.A. was incorporated with a share capital of Lit.
1,000,000 with the objective of manufactunng cathode tubes, X-ray tubes and
electronic sunolies for the newmarket that woild be created with the introduction
of television'in Italy.
Subsequently. in 1959,Selit S.P.A. was incorporated and look over the manu-
facture of cathode tubes only, while the administrative services remained under
the management of "Elettronica Sicula" (ELSI).
Limited evidencewill be given in this report as to the initial development that
Elettronica Sicula had in the manufacture of cathode and X-ray tubes. It is,
however, certain that over a period of ten years, at the end of which Our
investigation starts, the Company did not effectivelypenetrate the market. Thus
it is possible that the decision taken hy the management in March 1968matured
some time previously.
Although Selit, incorporated in 1959, klonged to "La Centrale" and to
"Thomas Electronic" companies wellknown hoth in ltaly andabroad, Elettronica
Sicula was not given adequate support by them.
On 4 October 1962, Elettronica Sicula S.P.A. changed ils name to Raytheon
ELSI S.P.A. since the North American group Raytheon of Lexington (USA)
kcame the major shareholder. At this time Raytheon ELSl decided to purchase
al1the shares in Selit therebv becomine ils agent.
Iluring 19hS120~e~tenihcr) ~r)theon ELS incorpor~tcJ %lit sancclling 311
its sharei. This transaction, the mosi reccnt. u~s undertaken as follou,~.
. . The resolution for the mereer of Selit into Ravtheon ELSl was taken al the
meeting held on 31 ~ïrch'i965 IO approtc ihc findnct~lstatcmcnh of both
conip:inie\ ai 30 Septembcr 1964.l'his nierger war Icgallyexecutcd by Noiary
I>iGiovanni in Pslermo on 20 Sentembcr 1965on the hasis of the balance
sheets of the two companies at 30.~e~tember 1964.
' By a letterdated7 March 1988.the Agent ofltalysubmitteda revisedtranslatioof
Document 36 which wassubstitutedfortheformertranslationbydecisionof thePresident
of the Chamber.However.the unrevised versionwasreferredto in someinstancesduring
the OralArguments (seeIII. Argumentof ProfessorLibonati).[Nore byrheRe-gis1ry.J I>OCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 203
(2) With the merger the eniireshare capital of Selit was cancelled and Raytheon
ELSl added io iis equity al1the assets and liabilities of Selit with a share-
capital of zero, since the profit of Lit. 16,129,377 shown hy Selit at 30
September 1964 was taken in reduction of goodwill in accordance aith a
decision of the shareholders' meeting.
(3) In the balance sheet of Raytheon ELSl al 30 September 1964 the item
"payables" included an amount due to Selitof Lit. 1,503,584,209,whilst Selit
showed an amount of Lit. 1,540,728,150,the diference of Lit. 37,143,941
beine receivable from the other agent (Generale Eleltronica).
(4) ~h~;nvesti~ations carried out on'ihe financial statements of Raytheori ELSI
and Selit ai 30 September 1964,regarding the transactions bctween the two
companies from incePtion until thedate of the merger, resultedin a decrease
in receivablesof Lit. 938,753,000.
Beforeexamining the management for the three-year periodprior to the decla-
ration of insolvency byRaytheon ELSI S.p.A., it should be remembered that at
the same time two other companies, hoth still in existence,operated in the same
field of radiologic producis, Fitra S.P.A. (share capital Lit. 60 million) and
Columhus S.O.A.(sha,~ canital Lit. 60 million). the former in Central Italv and
the Iïtirr in horth Iialy.The re~.cninionncr oi m~na~cnienioi iheie comp~nics
is nui knoun. ihoiigh IIxppcars ihat the) ;ire hc~ding for liquidation. hui
c<inridcr;iiionmusi he etben IOthe l';iciih;ii iheir rc,urredil. afccicd R;i\iheoii
ELSl since the latter in eiïect ahsorhed their heavy losks.
In this respect, a report on the management of Fitra and Columbus has been
found covering the period from incorporation through 31 December 1963,and
dunng this investigation evidencewill be given of occasions on which Raytheon
ELSl absorbed heavy losses on their behalf, including the payment of taxes
relative thereto.
Organizarion chorr
The organization chart of Raytheon ELSl S.P.A. during the latter period was
as follows:
Two managing directors under whom were the following Divisions:
,a. Producriun
- ThlX \\,hich manuldstursd misrg1u3,c iuhci.
TRC uhich niiinufxciurcd c~thodc iubcs.
- SCD uhich m:inukiçtiired elcctronic su~plies(semicondiictorsj
. .
(b) Administrarion
- financial,
- general and industrial accounting,
- ACU and personnel services.
(c) Commercial
One commercial and three sales manaeers.u
Those responsihle for the various sections during the latter period were
Messrs:
The managing directors with equal powers and singlesignatures:
- Ing. Aldo Profumo,
- Mr. Yustin Guidi,
were responsible for the technical and commercial management of the whole
Company. DOCUMENTS ANPIEXEO TO TH^ COUPITER-MEMORIAL 205
account, whilst in others it was possible to analyze the various production
expenses.
This diversity was suggested by management and accepted hy the st;itutory
auditors. and we believe ilwas carried out in a cursorv manner. thus it would
not be possibletoanalyze costs that werehigher than wo;ld normaily be expected.
Only for the period 111011966 to 301911967was a budget found that could be
compared with-the actualresults for the period. A comparison between these
financial statements and the budget (prepared in English) has lead us 10believe
that the loss could be considered "worse than expected.
We will now consider the analysis of production for the penultimate financial
year 1965166on the basis of the results of the officialfinancial statements which
showed a loss of Lit. 2,187,486,904.
It should be remembered that this loss represented more than hall the share
capital of Lit. 4 billion, without taking in10 account the accumulated losses of
prior years al 30September 1966Lit. 262,573.096,thus givinga total accumulated
loss a1such date of Lit. 2,500,000.000.
At this point it must be pointed out that these financial statements are the first
after the merger Raytheon ELSI-Selit in September 1965;thus the 1965 lossof
Selit which should be Lit. 362,573,096,less Lit. 47,529,111representing the losses
of Raytheon, becomes more notable in the suhsequent financial year.
What is the reason then for such a huee lossafter onlv one vear of manaeement
of the combined companies? -
There is reason to believe that:
(1) The losses of Selit that operated as a purchaser from Raytheon ELSl until
1964 were included with its assets for an amount greatly superior to the
diflerence hetween its share caoital and the loss for the vear Lit. 985.017.000
(~it I.~OO.WO.OO Irss LII 31i.9~3.000).
t2) Owing ILihe similarity i>fproduciion of ihe tuo compdmci. ihal in years
1964ihrourh 1966 had annr<i\irnatcl$ the samç srlcs\.olume.r.there could
not have bëen increases in Costs(evei though they did increase enormously
over the period of three years) which would havecaused the Companyto go
from a profit position, even ifslight, of Lit. 16,129,377 in 1964to a loss one
of Lit. 2,137,000,000 in 1966.
The following are the details of the above in Lire/million.
1964 1965 1966
Sales Selit 4 232 - -
Sales Raytheon 2 529 8 519 8242
- -
Total sales 6 761 - 519 8242
Profit (Loss) 16 (47) (2 137)
(in millions ofLit.) - 14 (314) - -
In order to consider such lossesas related to the industrial managemeiit,even
though at first glance this is not apparent, it should be remembered that the
single factors of production have been so distorted from one year to the next
that the loss should be increased fifty-fold in prior year (1965: Lit. 47.529,)11
net loss). Thus owing 10 the constancy of the gross margin foreseen as such in
the budget and considering a small decrease in the inventory valuation, the
incidence of direct costs should be approximalely the same (58-60 per cent) as
can he seen in the budgets for the years ended 30 September 1966 and 30
September 1967.Since such parameters in similar conditions (equal volume of206 ELETTRONICA SICULA
sales, same market conditions, etc.) are not possible, there is no doubt ihat
falsified elements have aflected the results of the entire management and such
hypothesis is further strengthened when it is considered that in certain years the
industrial expensesare shown in the profit and loss whilst in others they are not.
The figuresbelowdemonstrate more preciselythe unrealiablenessof the results,
with regard to the true situation and to the volume of sales as well as the
movements in inventory.
(A) RoriosbetweenSoles und Direci und Cenerol Cosrs
Soles 1963164 1964165 1965166 1966167
- - -
Selit 4 232
Raytheon ELSI 2 529 8 519 -8 242 -7 143
Total 6 761 8 519 8 242 7143
m(100%)(1 00%)1100%)
Cosrs
Labour 2 134 2 869 2 614 2616
Sales expenses 289 238 527 432
Interest payable 676 917 879 926
Depreciation 507 695 560 573
Sundry and
consumables 782 975 761 859
Various -
Royalties
Total
Inventory 2 350 2706 1822 1628
Diference (2 507) (3020) -4 193)
Loss (157) (314) (Z
- -
(B) AnalysisofMoi,emenrsin Invenrories
Opening inventory 19621 5-10 5-550 6-029
Opening inventory
Purchases 3 171 3 984 50118 4-230
- 111 - -
Charges to
inventory - 886 -9 305 -0735 -0259
Final inventory 2 806 5 550 6 029 5 564
Final inventory 2404 - - -
Revaluation 76 57 46 -
Study 665 678 467 372
Study -429 - - - - - -
Withdrawal - 379 -6285 - 542 5 926
Usage 2 507 3 020 4 193 4STj
- - - -
It is evident [rom the abovc summary how the final inventory in the Iwo years
1965166and 1966167has ken modified in order to align the preceding year with
the present with an increase of approximately Li1billion. DOCUMENTS ANKEXIID TO THE COUNTER-MEMORIAL 207
The extraordinary income and losses and other expenses have been rçmoved
from the summary showing the relationship between salesand direct and general
costs, including inventory costs.
3. Invesrigarionof Direcr andCeneralCosrs
(a) Labour
We mus1consider first of all, that in spite of the adoption of an efficientcos1
accounting systemand a profit and lossaccount al year end which showsdetailed
labour costs. it is Sel1that the analvsis of the direct labour costs and of aeneral
costs u,ith reiardti)the final thrrc-;car pzriod. h3s been possible (rom inïorma-
lion containcd in the grncral aicounting records SecAttlichnicnt 1whichsumma-
rizes al1the labour costs for the las1three years.
Taking into account that salaries and wages are shown as a single item in the
profit and loss account, it is possible to state that labour costs (employecs,
workers and management) is equdl to 33.67percent in 1965/66.to 31.71[Er cent
in 1966and to 36.62 per cent in 1967,of sales.
The following expenses should be added to these.
(b) Travellinge'ipensesin the v~riousyears:
1965 Lit. 89,358,000
1966 Lit. 127,040,000
1967 Lit. 94,896,000
Approximate costs not properly supported by appropriate documentation
(c)Bonarions which would not have been included as such in the accounts,
considering their nature:
1966 Lit. 4,950,000
1967 Lit. 9,470,000
Since these expenses are neither directly nor indirectly attributable to pro-
duction, they must beconsidered as licentiousness on the part of the directors,
as il is of no importance that they account for only a very small percentage of
the huge volume of costs of the Company.
(d) Horel expenses appear to be excessive,considering the limited number of
persons to which they should refer (consultants, directors of Raytheon USA).
Since they referred 10 long periods of time, they should have been included in
the fees of such persons, thus rediicing the burden for the Company.
The expenses were as follows:
1965 Lit. 7,650,000
1966 Lit. 7,121,000
1967 Lit. 6,424,000
Finallywe must mention the substantial amount of sundrye.ypense found each
year, Lit. 37,733,000in 1965; these expenses cannot be considered as such and
in any case they appear excessiveand incorrectly charged.
The chart of accounts relating to cost of labour is detailed enough to classify
them correctly.
(e) Analysisofsundry cosrs
This group includesal1those costs and expenses.either direct or general, which
do not regard either production or sales. If we leave aside those costs which, eventhough not properly justified, are of
modest amouni, the following is Our analysis of these costs which appearing
frequently are of a significant amount. Amongst the various costs which left us
in some doubt are the large amounts relating to cosrsfnrassisrance ro Rayrheon
as follows:
1965 Lit. 61,932,000
1966 Lit. 96,998,000
1967 Lit. 104,328,000,
which were added to royalriespaid in:
1965 Lit. 119.405.791
1966 Lit. 79,481.279
1967 Lit. 75,284,877
Derailsof theaccounr"TechnicolConsulrancyServices" (exlract îrom the book
"payments to third parties"):
(1) Consulrancyservicesrenderedal Seprember1967
- Mr. Helmut Post Lit. 9,000,000
- Mr. Conoscenti Lit. 320,000
- Dr. Giuseppe della Ragione Lit. 5,000,000
- Mr. Helmut Post Lit. 375,000
- Mr. James Conoscenti Lit. 320,000(monthly)
- Ing. Kunig Harbert Lit. 11,682,000(21 July 1967)
- Dr. Ciuseppe della Regione Lit. 5,687,708(23 June 1967)
- Mr. Walter Jaeger Lit. 2,713,744 (17April 1967)
- Mr. Walter Jaeger Lit. 8,726,631(9 March 1967)
- Mr. Waller Jaeger Lit. 3,400,000(31 Oct. 1966-
9 Feb. 1967)
- Mr. Walter Jaeger Lit. 1,772,291(18 Oci. 1966).
(2) Consulrancyservicesrenderedal 30 Seprember1966
- Mr. Ralph D'Amato Lit. 5,500,000
- Mr. Walter Jaeger Lit. 19,279,785
- Mr. James Conoscenti Lit. 3,840,000
- Mr. Ralph D'Amato Lit. 1,000.000.
(3) Consulrancyservicesrenderedal 30 Seprember1965
- Ing. Walter Jaeger Lit. 23,677,749
- Ing. Walter Jaeger Lit. 10,405,742(9 Sep. 1965)
- Ing. Walter Jaeger Lit. 1,700,000 (30Sep..
28 Oct. 1965)
(4) Consulrancyservicesrendered and feespoid in rhepre-insolvenc~ p~eriod
29 Jan. 1968 - Dr. Ciuseppe della Ragione Lit. 4,000.000
5 Feb. 1968 - Ing. Helmut Post Lit. 375,000
6 Feb. 1968 - Mr. James Conoscenti Lit. 343,000
29 Feb. 1968 - Dr. Giuseppe della Ragione Lit. 4,500,000
29 Feh. 1968 - Dr. Giuseppe della Ragione (reimb.) Lit. 873.317 DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 209
6 March 1968 - Notary Di Giovanni Lit. 7,600,000
(increase in share capital)
6 March 1968 - MI. James Conoscenti Lit.. . .
There is reason to believethat the holdingcompany penodically paid significant
amounts which greatly affected the results each year.
Leaving aside the royalties, whichalone would not have been able lo justify
the payment of the other categories of costs, namely, lechniculcowsul~an<: ees
amounting to
1965 Lit. 15,101,000
1966 Lit. 42,212,000
1967 Lit. 61,948,000
we must conclude that, in addition to the production system already in existence
for which the company had since 1954formed a technical patrimony, the Com-
pany had to add a mark-up. so that even if it is true that the poor quality of the
producis meant that production had Io be repeated (goods returned, returns from
clients. defectiveeoods left at customs or at the client). the iustification of such
costs should not iave permitted such occurrences.
In fact, adding al1the above expenses(group assistance, royalties and technical
consultancies) we ohtain an overall annual amount of
1965 Lit. 196,438,000
1966 Lit. 218,891,000
1967 Lit. 241,560,000
nithdu! 13kinginio :iccounteither ihc costj ~ncurrcddirectl) wi~hinihe coiilpan).
which. as IIis kn<~un.emplo)eJ a technical m~napcmeniteam \rho,c salarie, are
shoun under "Salsrics and u.~ces"or ihc hure c,isl%incurred for -Reccar:h and
develooment" which will be dealt with later.-
. -~ ~ ~ ~~
Continuing the anal)sii or the 'undry costs in the financidl siaicmcnt; from
1965Io 1967,ihcrc :irc vanous psymcnia uhich arc no1jurlifi~ble.At lhis ooini
we must mention the "vurious e~r&nsesn (see attachmenf).
Sincethe generalmanagement existedonly in narneand thecomponents thereof
were the two managing directors, there is some perplexity as to a caption found
in the records for the years 1966and 1967and in the 1968cash book.
An extract of the ahove is as follows:
29 Dec. 1966orivate exoenses eeneral manaeement Lit. 250.000
31 March 1967bank transfer i. D'Amato (consultant) Lit. 2,538;429
22 May 1967private expensesgeneral management Lit. 4,000,000
3 July 1967private expensesgeneral management Lit. 2,200,000
28 Julv 1967 orivate exnenses -eneral manace-ent Lit. 2..3~~.00
31 AUA.1967pri\aie expcnscsgener~lni.inagcinent Lit. 900.0UO
8 Sep 1967prii,ntc e\penscs gr'necilnianagement Lit. 400.000
211Aug. 1967priiatc cxpcnsei gsneral m;in:igcmcni Lit 300.000
and again in the year 1967168which terminated al the end of March 1968with
the declaralion of insolvency:
13 Oct. 1967onvate exoenses eeneral manaeement Lit. 2.114.000
?OI>ci 1967pri\îic cx~nscs icncral manaÈcmeiit Lii 306.000
21 Jan. 1968pri\atc crpcnres general manïgcment Li1 2.106.000
?? Jan. 1908pri\;itz cipenses ysneral manïgcment Li1 4.000.00031 Jan. 1968private expenses general management Lit. 3,275,057
29 Feb. 1968sundry for credit notes Lit. 5,349,469
Total Lit.-46,787,955
During the last part of the financial year (January-March 1968)there was a
payment, for travelling expenses, to Wagon Lits Cook for Lit. 1,684,455on 22
February 1968 and Lit. 1,329,989on 29 February 1968, though it should be
considered that the dircctors, staff and consultants had sufficientfunds for such
expenses and in such context the payment of Lit. 1,691,181on 4 January 1968
to Ing. Barberis, who was in charge of the Paris representative office,should be
noted. Another erroneous transaction during 1967in the "general management
expenses fund" is the discounting of a bill of Lit. 15,000,000to a certain Mr.
Domenico Guaiana, to whom payments were made (17 January 1967, Lit.
1,000,000and 26 April 1967,Lit. 10,000,000)against a bill of exchange.
Mr. Guaiana's account was overdrawn for an advance on his expense account
of Lit. 770,000(see atiachment).
Al><]uiih regard IO ihc liforc-mentioncd noied 'dunliiionr" aticniion should
be yi\.cn io the pli)mcni madc on icrminstion ulthe coniract io Dr. Chiclini on
16January 1968.
Since Dr. Chielini was an employee of the first level,as can be presumed from
his salary, and was in the company's employmentsincethe incorporation of ELSl
(1954)and considering that his monthly salary was Lit. 241,135including for the
calculation of his termination benefitthe quota of the 13th-month salary, vaca-
tion, etc., and calculating one month for each year of service (15 years), his
termination benefit should have been Lit. 4,200,000 against the Lit. 7,099,268
actually paid as documented in the cash book, that is, approximately Lit.
3,000,000in excess.
(f) Sundrycosrsand expenses which should have ken insignificant amounts
but were, in certain years, of relevance.
Leaving aside anyjustifiable comment on the amounts of inreresrpayable (Lit.
774,940,000in 1965,Lit. 726,947,000 in1966and Lit. 926,553,000 in1967).which
leads to the assumption that at an annual rate of 10percent approximately Lit.
12 billion of external capital was used throughout the year, though the use of
this was obviously no1 maximized, the result was that the financial position
continued to deteriorate especially when also taking into account the medium-
term loans (IRFIS, Banco di SiciliaSez.Credito Industriale, EFI Banca, etc.) the
interest on which is not included in the above amounts. At this point we must
point out that this deficiencyin the working capital (not remunerable on the basis
of the volume of sales effected) contributed to increase the loss of the various
years by a good 45 percent.
(g) Baddebrsn,rirrenoff
These costs in the financial statements for the year 1965166amounted to Lit.
216,254,000 as against the previous year 1964165(Lit. 31,926,000) and the
following year 1966167(Lit. 38,590,000).
An in&siigliiion of ihe rclsied accounis. liccounts recei\îble. Group companies
and liccounts pî)able showed thai this limouiit included an amount ol Lii.
121.585,58?uncolleciahle from Fitra S DA - an dssoclliiedComnlinv man.
aged by a certain Mr. Carlo Emanuele Ferrero - Sole Director. . ,
Apart from the fact that this Company is connected with Raytheon ELSl
S.p.A., the amount of the loss was such that it was impossible not to notice it. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 211
Further this lossresulting from an uncollectahlereceivablecould no1 be written
of since the reserve for doubtful debts, at 30 September 1966,had a balance of
only Lit. 42,041,145.
Further with regard to the sundry provisions, discounts allowed were only
shown for the following years:
1965 Lit. 34,767,000
1966 Lit. 43,277,000
with nothing shown for 1967;in fact it appears rather odd thal in the whole year
no discounts were allowed to customers. lnstead in 1967.and onlv in that vea..
do we find packingcosts of Lit. 30,985,000included in sellingexpinses.
Finally, to complete our analysis of this group of general and direct cojts, we
must consider that the costs relative to accruais for prior years to the leaving
indemnity fund and the rounding up of the amounts paid to personnel leaving
the cornpany's employment, were not adequately supported.
With regard to accruals for prior years made to the leaving indemnity fund, it
is surprising that this wasonly recalculated in 1966(Lit. 31,026,000)and in 1967
(Lit. 17,035,000);in fact in the lasi year, 1967,there was a provision for accruals
made to the leavingindemnity fund,amongst personnelcosts,for Lii. 112,512,000.
The most irregular occurrence, however, was therounding of amounis paid to
employees leaving the Company,equal to Lit. 9,444,000in 1965,Lit. 15,262,000
in 1966and Lit. 26,159,000 in 1967.
(h) Conclusions on ou, unulysis O/ i/hedirect andgenerulcusts
Having concluded our analysis of direct and general costs and having çarried
out lirniled investigations on the various items included therein, it mus1 be
considered that the Comoan.'s,accounts were often tamoered with so that costs
and/or expenseswere recorded in incorrect accounts, thus resulting in a situation
difficult to control, orincipally due to the diversity of the many costs involved,
as well as the impo&ibility lo-apply set parameter; to those ofihe same kind.
It must also be stated, however, that the classification of the costs in the
"budget" made it vossible io put similar costs into one or more accounts.
In Ïhis regard ii'was iinposiiblc ia cheik the direct pr<idustioncosis. i,is-i.vis
ihoscesiimliicd in ihc budgci uiih the published financialst;itcmenis. ilu;is unly
oossible to compare themwith the budeets which. for thai vortion which had
been put into pr&tice, showed resultsfar-worse than those shown in the firiancial
statements.
In this connection, for the year 1965166,whilst the budget forecast a loss of
Lii. 356,100,000equal to 4 percent of the sales,the published financialstatements
showed a loss of Lit. 2,137,486,964 (seeattachment).
It mus1he considered in this respectthat the large diference (Lit. 2,137,486,964
less356,100,000) isdue to lower valuaiion of assets or higher estimaied liabilities.
This happened again in the year ended 30 Septemher 1967whenthe diference
berween the hudgeted loss of Lit. 1,745,400,000and the actual loss shown in the
financial statements of Lit. 2,683,460,000was approximately Lit. I billion.
4. Anal.vsisof Suies
Ai this point uc do no1sonsider thai our in\csiigaiions on ihc volumei~fsales
for the three )car, 1965Io 1967c3n bc iiiany grai asibiancï
On ;is~mrilchasis uc chccked ihe amount of purchliseta* (IGt'i riiiidovçr on
sales in ltal; as wellas the deduction for fore& sales. With regard to sales we mus1take into account the fact that, since to a large
extent the sales weredestined to clients who returned the goods or did not pay
for them, ihis could lead 10a fictitious overstatement of such sales, whichremain
in the end frozen in the account "accounts receivable".
We reached ihis conclusion by analyzing the account "accounts receivable -
foreign" at 31March 1968whichincludescustomerswho would no1have received
the goods or those who would not have paid for goods regularly invoiced.
Amongst theseis Lit. 246,296,774due from Neye AlfredEnateckmer of Quick-
born (WestGermany); the goods (conductors) weredespatched and subsequently
returned, remaining in customs.
It mus1be remembered that in the meantime the banks had granted overdraft
facilities on the basis of such exports which the company used. writing off the
debt aeainst other amounts until the end of 1967when the overdraft (mainlv
with tic Banca Nazionale del Lavoro) amounted 10 approximately ~it. 66i
million (seedetails below).
In this manner the unsuccessful sales continued and the receivership has now
instituted procedures for recovery of the related receivables.
With reference to Our analysis of the sales and to certain calegories of receiv-
ables, we noted that large credit facilities had been granted, as shown below:
T. Bosch Ferrau - Barcelona (Spain) Lit. 135,335,635
Kuba - Lit. 303,732,458
Thomson of Houston Lit. 13,281,408
etc., andit should he rememhered that the company had requested the auditing
firm "Fidital" of Milan to check the amounts due from debtors.
5. Analysis O/SundryDebrors
In this respect, leavingaside the figure of Lit. 73,461.268relative to advances
made 10 staff, it is important to note, among "Miscellaneousreceivables" and
"O~herreceirobles", the following:
(1) Advances to management and consultants for expenses.
(2) Receivablefor the reimbursement of IGE on the exportation of goods in the
last period, to be receivedfrom the finance police ofPalermo for an amount
of Lit. 71,878,691.
(3) Other receivables whichwill be detailed helow.
Amongst "Orherreceiiwbles" (theaccount issoentitled), the principal accounts,
since they also refer to other transactions, are:
(1) The account Ing. Colombo,
(2) The account Carlo Emanuele Ferrero,
related to the financial statements al 30 September 1966.
The account Ing. Colombo (managing director of Columbus S.p.A.) at 30
September 1966showed a debit balance of Lit. 82,193,039of which Lit. 65,084,396
related to the year ended 30 September 1965.The credits 10this account related
to the reimbursement of advances and receipts for payment of invoices on his
behalf.
During the year 1966167the account balance increased until it reached at 30
September 1967 a total of Lit. 190,712,698and was written off at such lime
"using the taxed reserve" for the same amount.
Included in "Accounts receivable" and "Accounts payable" is a compensating
entry, that is: DOCUMENTS ANNEXED TU THE COUNTER-YEMORIAL 213
Accounts receivable - Debit Lit. 25,854,705
Accounts payable - Credit Lit. 45,547,181,
In addition, at 30 September 1967 the account "Columbus special account"
was closed and was not shown in the financial statements at such date. This
account had not moved since the year 1965166and was written off "uiilizing the
taxed reserve" in an amount of Lit. 136,500,000.
The account C. E. Ferrer showed a balance al 30 September 1965 of Lit.
31,926,701and increased during the year 1965166as a resull of withdrawals for
bills,with a sole credit for commissionsequal to Lit. 19,384,300,giving a balance
of Lit. 134,922,116,and was finally closed (al 31 January 1967)using the same
ledger card that should have ceased to exist on 30 September 1966.
Mr. Carlo Emanuele Ferrero who, as is known, was the managing director of
Fitra S.p.A., also had a similar account, closed al 30 September 1966,showing
a balance of Lit. 136,500,000of which Lit. 121,586,582was uncolleclable (see
above) and the remainder, Lit. 14,914,418waswntten of at 30 September 1967
"utilizing the taxed reserve".
The identical amounts of the iwo special accounts of Fitra and Columbus, Lit.
136,500,000,should be noted. These two accounts increased the lossof Raythwn
ELSl by Lit. 327,212,698Ing. Colombo, Lit. 271,422,116Mr. Ferrero, for a total
amount of Lit. 598,634,814.
6. Anulysis ofInvenrory
One of the most significant items to examine is the Invenrorywhich included
thousands of articles and was updated by the IBM computer bureau and could
be considered when determinine the valuation as a certain hidine olace for losses.
We have good rcason ta believe this in fact, when study& the financial
statements from 1965167together wiih the final situation of insolvency at 31
March 1968in order to compare thcm with the results efectively calculated by
the sworn appraisors nominated by the receivership,and when discarding finally
what can or could be salvaged.
The inventories at year end for each of the above years gave the following
amounts:
Financial statements at 30 September 1965 - Final
inventory Lit. 5,679,087,465
Financial statements at 30 September 1966 - Final
inventory Lit. 6,202,101,004
F~ ~ ~ ~ ~ ~ ~ ~ ~ts at 30 Seotember 1967 - Final
inventory Lit. 6,692,156,656
At insolvencydate - Final inventory Lit. 5,519,600,000.
When considering the piirchase in the various fiscal years and the sales, the
results for the lasi two years, 30September 1966and 30 September 1967,remain
constant whilst a large dilïerence of approximately Lit. 1.500,000,000can be seen
in the financial statements at 30 September 1965. a dilïerence which can be
described as an overvaluation of inventory.
In fact, if we rcclassify the values (rounded to the nearest million) for move-
ments in inventory for the years from 1965to 1967,we obtain:
Year 1964165
- Opening balance Lit. 5,210.008
- Purchases Lit. 3.984.695
Total Lit. 9.194.704 ELETTRONICA SICULA
Less: sales in the vear Lit. 8.519.480
Closing balance Lit. 5:679;087
Gross profit Lit. 5,003,863
Year1965166
- Opening balance Lit. 5,679,087
- Purchases Lit. 5,067,682
Total Lit. 10,746,769
Less: sales in the year Lit. 8,242,452
Closing balance Lit. 6,202,156
Cross profit Lii. 3,697,838
Yeor1966167
- Opening balance Lit. 6,202,156
- Purchases Lit. 4,230,699
Total value Lit. 10,432,800
Less: salesfor the year Lit. 7,143,407
Closing balance Lii. 6,692,156
Cross profit Lit. 3,402,763
As can be seen from the above, the gross profit, which in the lighi of an even
level of production and raw materials, should have remained constant, in the
year 1964165(year of the merger Raytheon ELSI/Selit) increased by approxi-
mately Lit. 1,500,000,000,from the normal value of Lit. 3,500,000,000to Lit.
5,000,000,000as an effect of the over-valuation of inventory effected on that
occasion.
As further proof of this, we must also consider the ahnormal diiierence in
valuation at the date of insolvency resulting from the appraisal carried out by
Prof. Ing. Di Benedetto, who valued the inventory shown in the financial state-
ments at Lit. 5,519,600,000,for an amount of Lit. 2,300,000,000.
Ohviously, Professor Di Benedetto's valuation had a lower value as it was
valued for liquidation purposes and consequently it cannot be considered as an
estimate of the normal production.
In order 10convalidate this deduction which cannot in aciual fact be proved
since there are no elements available (physical stock, detailed analysis of move-
ments, etc.), it cabe held that, apart from increasesor decreasesof a compensa-
ting nature each year, inventory was overstated in the financial statements by an
amount hetween Lit. 1,500,000,000and Lit. 2,000,000,000.
In this respect it is not useful to examine the amounts due to suppliers at the
end of each period considered ahove, since the amouni appears insignificant,
especiallyin the last two years, nor would it be usefulto consider the amount of
bank loans granted against imports, obviously taken to he overseasdebts for raw
materials; at 30 Septemher 1967these totalled Lit. 2,447,782,787.
7. Anolysisof Work in ProgressforSludies.Reseorclr and Bevelopmenr
At each year-end the intemal costs incurred to construct new plant, manufac-
lure own products and for studies, were capiialized, obviously without compu-
ting the value of the projects finalized during the year (finished goods) which,
instead of increasing the value of "patents, studies, research and development".
or the account "plant, machinery and equipment", has confused the value of
purchases. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 215
An analysis of the specificaccounts for the three years in question shows an
annual cos1of approximately Lit. X00.000,000as follows:
Capitalizations during 1965 Lit. 678,409,000
Capitalizations during 1966 Lit. 467,000,000
Capitalizations during 1967 Lit. 372,000,000.
While in the assets, apart from work-in-progress valued at the end of each year
in:
1965 - Work in progress for stiidies, research and
development Lit. 978,364,000
1966 - Work in progress for studies, research and
development Lit. 781,053,000
1967 - Work in progress for studies, research and
development Lit. 441,201,000
there were the following increases in plant, studies, research and develop-
ment :
Ducing 1965only for work in progress:
During 1966the increase related 10:
(a) plant and machinery
(b) studies, research and development (decrease)
thus the total increase was
for which we deduct the work in progress that
increased during the year for Lit. ~197,000,000)
we obtain a loss of Lit.
During 1967there was a decrease in the value of
plant equal Io Lit. (351,000,000)
and in studies and research costs of Lit. (126,000,000)
giving a total decrease of Lit. (477,000,000)
to which we must add work-in-progress that
increased during the year Lit. (330,000,000)
giving a loss of Lit. ~807,000,000)
In conclusion. uc hai,e trird to dcmonjtr:~iî th.11in this sccior. cien iho~gh
the company cinlyobtsiiicd cxpcr1cnr.c.there u;~s;in oier~ll lors in ihc iiiiancidl
>tatcments bct\iccn 1965and 1'16701'Lii I.(iYU.O(iO.O(iL IOit 263.1~1.WIlJ~ 1.11
807,000,000) whichgave rire Io the loss of al1the assets jn this scctor, cqual to
Lit. 2,430,000,000since they were not realizable.
At this oint it must he remembered that the comuanv carried out uudatine
preparatiin, studies and other work, etc., with an aniuaicost of approimatel;
Lit. 800,000,000;even ihough suchcosts werecapitalized annually and amortized
in subsesuent vears. since ihev did not bear anv fruit, thev mus1be considered
as a hea;y burden on the resu-ltsof the penod. .
We still believe itlegitimate to question why the company spent so much on
studies, research and development (not counting amongst others the high costs
for technical consultants) while paying royalties Io ils holding company which
alone should have permitted a well-organizedproduction adopting the production
lines laid down by the same. From Our investigation we have noted that the
Company, after a number of years of production, had still no[ defined its pro-
duction lines.216 ELETTRONICA SICULA
Wenoied th31th? main Ici.re\ultcrl in thSCD scctor (clectron~cequipment).
rc\c~ling 11to be J complctc fail~rcon uhlch huer. aniounts hdd becn spcnt
Certa'Ïnly,if the management had had a greate; technical rectitude, such large
costs in this sector would not have been allowed, apart from the consultancy
fees. which, even if not totally incurred for this sector, have resulted excessive
when compared with the fact that the overall aim of the company has not been
achieved after so many years of activity.
8. Bank Current Accountsand Overdra/ts
The origin of the bank overdraft at the insolvencydate for an amount of Lit.
12,971,000,000can he divided in10three categories:
(1) overdraft for normal daily use;
(2) amounts advanced from the banks on imported goods (payments to sup-
pliers)and for goods exported (advances to the company against presenta-
lion of invoices withcustoms' stamp);
(3) long and medium-term loans on the company's plantand inventory.
At insolvencydate, sincethe balance on longand medium-term loansamounted
to Lit. 3,841,600,000,the diflerence of Lit. 9,129,400,000was made up by bank
overdrafts and Lit. 1,200,000,000of bills of exchange payable to banks as they
referred 10accommodation bills discounted with the banks.
The analysis of the three years shows an increase in the years ended 30
September 1965(Lit. 1,093,500.000)and 30 September 1966(Lit. 1,142,000,000)
whilst there was a slight decrease for the year ended 30 September 1967 (Lit.
314.000,000) and for the part of the year till insolvency was declared (Lit.
350,000,000).
When examining the overdrafts, we must consider the bank guarantee given
hy the holding company for an amount up to Lit. 5,090,000,000, excluding
the mortgages and other privileges already guaranteeing the loans and over-
drafts.
There are grounds for believing that the parent company, which provided
assistance 10ils subsidiary upon remuneration had ample time to realize that the
subsidiary's indebtedness wasswellingprogressivelyand growing out of al1pro-
portion lo the volume of production, and we are surprised that the parent
company did no1 sec fit to hring the subsidiary within morc rcalistic limits, for
which it gave a guarantee of over fivebillion lire.
9. Final Noresof the TechnicoA l dvisor
The investigation was difficult in that explanations from pcrsons who had
closely followed the company were not forthcoming, except forcertain explana-
lions from Rag. Nicolo Fiandaca, administrative director responsible for the
financial sector. On the other hand, the amount of administrative and accounting
entries, the complex activity of the company from a technical point of viewand
owing to the interna1 and external financial transactions (between group com-
panies, financing by the holding company, etc.), as wellas the difficultiesof find-
ing filed documents, meant that the investigation could not be carried out in a
short period of time; consequently the investigation was limitedto a general ex-
amination of a numher of items for the lasi three accounting periods (1964165-
31/3/68),concentrating on certain items that 1considered to be of major impor-
tance. DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 217
In this investieation. as well as in the actual tests. 1was ablv assisted hv Prof.
Dr Giuscppc ~ircone. who u\ed hic knowledge of thc appl;iaiin of &odern
î~~countingtechniques. 3s UCas of the Amerir.<insccounting systems gcnerally
adopted by the company.
Palemo, 20 November 1969.
Dott. Giuseppe MBRCADANTE. Document37
SIC~L~A REGIONAL LAWNO. 12 OF 13 MAY1968."SPECIAL BENEFIT FOR
EMPLOYE ESELSl OFPALERM AND SATS OF MESSINA''
[Ituliun rext not reproduced]
(DOC.NO.4)LAW NO.12 OF13 MAY 1968;SPECIAL RENEFITS FOR EMPLOYEFSOF
EL.SOF PALERM OND SATSOF MESSINA
SlClLlAN REGION. THE REGIONAL ASSEMBLY HAVING
APPROVED, THE PRESIDENT OF THE REGION HEREBY
PROMULGATES
thefollou,ingInw
Article 1
The regional councillor for labour and co-operation is hercby authorized to
make payment, for the months of March, April and May 1968,to the dismissed
em~. .eesof Ravtheon-EL.SI of Palermo of a soecial monthlv ind,mni.v eaual
Io ihc licIu:~In~o"pay~rccci\,cd uniil ihc niunih of ~chru:i;? 1968.
'Thecmplo!cer dismircd after ihc month of hlarch shlill rcccivcihe indcrnniii
as from l-~arch 1968.
Articl2
The regional councillor for labour and co-operation is hereby authorized to
make payment, starting from 1April 1968,to the dismissed employees of SATS
of Messina of a special monthly indemnity equal ta the actual monthly pay
received. This indemnity shall be paid until such lime as management resumes
control and in any case not after 31 May 1968.
Article 3
The indemnity provided for in Articles I and 2 above shall becommensurate
wiih the amount of pay actually received on the basis of 26 working days per
month.
Article 4
In the implementaiion of the present law the provisionsof regional lawNo. 334
of 2August 1954shall apply.
Articl5
Approval is hereby granted for expenditure of 300million lire for the purposes
laid down in Article I ahove and of 70 million lire for those laid down in Ar-
ticle 2. DOCUMENTS ANNEXED IO THE COUNTER-MEMORIAL 219
The ahove-mentioned amounts shall be paid into the Sicilian fund for the
welfare and employment of johless workers estahlished in accordance with
Regional Presidential Decree No. 25 of 18April 1951.
Arricle6
The expenditure incurred under the present law shall be covered using funds
appropriated to section 20911of the Budget for the financial year 1968.
The present act shall be published inthOjîcial Guzerreof the Sicilian Region.
It is mandatory to respect and enforce it as a law of the Region.
Palerrno, 13 May 1968, ELETTRONICA SICULA
Document 38
SICILIANREGIONAL LAWNO.23 OF6 AUGUST 1968,"FURTHER SPECIAB LENEFITS
FOR EMPLOYE EFSELSl OF PALERMO~
(Ifalian textnotreproduced]
LAW NO.23 OF 6AUGUST 1968(OFFICIAB LULLET/% NO.36 OFAuGuSiIO)
FURTHER SPECIAL BENEFITS FOR THE EMPLOYEES OF EL.SIOF PALERMO (OFFICIAL
GAZETTE, NO, 224OF 3SEPTEMBER).
The Regional Assemblyhavingapproved:
The President of the Region hereby promulgates the followinglaw:
Article 1Approval is hereby granted for a further expenditure of 350,000,000
lirerelative to the period from I lune to 15September 1968,for the purposes laid
down in Article 1of lawNo. 12(3)of 13May 1968.
The monthly allowance provided for in Article I of the above-mentioned law is
also paid to those employees who attended the retraining courses managed by
EL.SI on behalf of the Ministry of Labour, as well as to those employees wbo
wereput on reserveby Raytheon EL.SI in March 1968and subsequentlydismissed
on 30April 1968.
The sums effectively receivedby the employees concerned in March 1968are
deducted from the aforesaidindemnity.
Those workers who were employed in another capacity are not entitled to
receivesuch indemnity.
Article2. The amount under Article I shall be paid in10 the Sicilian fund for
the welfare and employment of jobless workers, established in accordance with
Regional Presidential DecreeNo. 25 of 18April 1951.
Article3. The expenditure of 350,000,000 lire,incurred under Article 1 of the
present law, shall be covered using a quota of the funds appropnated to sec-
tion 10802of the budget of the SicilianRegion for the current financialyear.
The quota of the appropriation authorized under Article 5, first subparagraph
of Law No. 24of 24Octoher 1966,concerning the financialyear 1968and utilized
in compliance with the foregoing subparagraph, is carried over to the financial
year 1983.
The President of the Region is hereby authorized to modify the budget- if
necessary- by virtue of his own decree.
Article4. ESPI is hereby authorized to participate in a Company aiming at
taking over the property constituting Raytheon EL.SI corporate assets, in order
to ensure their utilization for the production purposes inherent to the activity
alreadv carried out bv the said Rav~~ ~ ~EL.SI.
~rtfcle5.The preséntact shall be published intOficial Gozrtreof the Sicilian
Region and shall come inIo forceon the same day of itspublication. Document39
SICILIANREGIONAL LAWNo. 31 OF 23 NOVEMBE 1R968,"INTEGRATIP VREOVISIONS
ro REGIONAL LAWNO.23(2) OF 8 AUGUST 1968CONCERNING FURTHER SI'ECIAL
BENEFIT FOR EMPLOYE ESELSl OFPALERMO"
LAH's~I.31 ob 23 SO\~\IHI.R1968(ot.t?c~ni.H1rLttt.r..so 53ob 23 ho\,riincR).
PROVISIO\SSUPPI.EIIESlI<CRI(üIO\~\.AU'O 23(1)(lb6AUCUST 1968.C(iSCEK\-
1NG FURTHER SPECIAL BENEFITSFOR EMPLOYEESOF ELSI OF PALERMO(OFFICIA OUR-
KALN , O.313OF 10DECEMBER).
The Regional Assemhly having approved; the Presideni of the Region hereby
promulgates the followinglaw:
Article1.Approval is hereby granted for a further expenditure of 230 million
lirefor the purposes laid down in Law No.23 of 6 August 1968.
Article2. The words "relative to the period from 1June Io 15Sepiemher 1968"
under the first subparagraph of Article I of law No. 23 dated 6 Augiist 1968,are
replaced by the followingones: "relative to the period1June to 15October
1968".
Article3. The expenditure incurred under the present Iÿwshall be covered using
a quota of the funds appropriated to section 20911 of the budget of the Sicilian
Region forthe financial year 1968.
In connection with ihe foregoiiig subparagraph, Annex No. to the Budget
estimate for the financialyear 1968ismodifiedas follows:
Capilal e.rpendirures
Section No. 20911.Necessaryfunds in order to meetexpenses.elc.
Objecrojrhe prorision
Entry to be modified:
Participation of the Siciliangion in the endowment fund of the Regional
lnstitute for the Financing of Industries in Sicily(IRFIS). From 800million lire
to 570million lire,eniry to be added:
Provisions supplementing regional law No. 23 of 6 August 1968,concerning
further specialhenefitsfor the employeesof EL.SI of Palermo.
230million lire.
Arricie 4. The President of the Region is hereby authorized to modify the
budget - if necessar- by viriue of his own decrees.
Arricle5. The present act shallbepublished in the Oficia/Cazerte of the Sicilian
Region, and shall come inio forceon the same day of ils publication. Document40
REPORT OF THE BANKRUPTC RECEIVEA R,VVOCAT SIRACUSA 6,MARCH1970
[Iialian fextnot reproduced]
1, Attorney Giuseppe Siracusa, trustee in the matter of the afore-mentioned
bankruptcy proceedings,further to myearlier report of 28October 1968deposited
on 31October 1968hereby advise you as follows:
The expert witness appointed by you, Dr. Giuseppe Mercadante, submitted his
report, duly swom, on 29November. In it he stated that the company's statutory
accounting records had no1 been kept in the customary manner, in that the
transactions had no1 been entered in senal form. Under this modus procedendi,
each transaction entered in the journal was recorded without cross-reference or
senal number. According to the expert witness, this was incorrect and serious
because, even though the pages in the day book were serial-numhered (albeit
without being initialledby theNotary Public who had stamped them for authenti-
cation), any transaction could have heen fitted into any blank space without
showing that il had been unlawfullyentered al a later time.
The expert witness also confirmed what 1had earlier stated in my first report
deposited on 31.10.1968, namely, that the company's accounting records and
general accounts had been entered up to 31 December 1967.
The expert witness also referred to the analyses he had made of the company's
output and pointed out that thisexamination had not revealedany soundgrounds
justifying Raytheon EL.SI. S.p.A.'slossesup to the financial year whichended al
30 September 1967.His analysis of production over the las1three-year period,
which he conducted in order to identify the causes and the reasons for the com-
pany's serious indehtedness, produced widely inconsistent results, particularly
with regard to the direct and labour costs as a percentage of the quantities of
goods sold. This being so,and in viewof the difficultyof carrying out his examina-
tion, the exoert witness concluded that forged entries had been made in the
accounting iecords. He felt that this was mire likely to be the case since the
Companyhad practised cos1accountingfor some years, but no1for others.
Bearing this in mind, the expert witness made an analytical examination of the
direct costs and overheads, in which he noted a numher of inconsistencies and
irregularities.
1 am submittin..his technical reoort to vou so that vou can ao..ais~ ~hese
piiini. uhich dre dcil1 uiih quite ihhroulthlYand cplicitl!.
As \.>u knw, thr Ka)thcon C<~niodn, tiaseniiilcdIO r<i>altieifor ihz u.c of
ils technical processes and patents. i'heéxpert witness noted that the Raytheon
Company had not only collected these royalties but that it had also received
suhstantial supplementary revenue from what il referred to as "assistance", with-
out any further qualification. These revenues totalled Lire 60,932,000 in 1965,
Lire 96,998,000in 1966,and Lire 104,328,000in 1967.Raytheon EL.SI also paid
out considerable sumsfor servicesreceivedfrom third-party technicalconsultants:
Lire 15,101,000in 1965,Lire 42,212,000 in 1966,and Lire 66,818,000in 1967. DOCUMENTS ANNEXED TO THE COUNTER-MEMORLAL 223
For such large fees one might reasonably have expected its products to be
virtually perfectfrom a technicalpoint of view. Ycttheycontinued to he defective,
and the customers continued to return them as faulty. The expert witness was
unable to find any explanation for this, but his main difficultywasjustifying these
costs. considering the poor quality of the goods produced.
1therefore feel that good grounds exist for instituting proceedings agaiiisi the
company directors in respect ofthese expenses,sincethey werewholly unjistified
as far as the results on production wereconcerned. At al1events, 1consider that
legalaction can certainly he taken against the Raytheon Company to recover the
money paid to it for assistance, in addition to the revenuefrom royalties to which
it was certainly entitled.
Justification for this opinion stems from the fact that, according to the expert
witness, the company carried out updating, preparation and research worktotal-
ling an average of Lire 800,000,000 peryear, which il capitalized annually to he
gradually amortized in future financialyears.
However, the consultant noted that since these expenditures did no1produce
revenue. thev should be considered solelv as substantial ooeratine l-sses. This
ticu,1i \upportcJ by the c\pcrt t\~itiicrconi~.niionthai iiu<~uldbc quitc :thrurd
l'or2 cornp.in! to iniur uch hugc cxpcnics on ri.\c.ircli.inclcrperinicnl.iiion. in
~~Jiti~iiito othcr hure erricnrci uri tcclinicil consiiltïnc\. ,iiIrirt,Juic fault\
products. Ils products should have been ncarly perfeit and of high 1ec:hnic;l
quality even if one only considers the assistanceaccruingfrom the payment ofthe
royalties. But the expert witness was also puzzled when he analyzed the sales,
loans and inventories. as he stated in hisreoort to which 1refer vou.
The rcsult, iiithr inspcctidn c.trried out h?thc expcrt iiitncis ;iuditor. ~s,irtcd
by Prokrsor Gi~scppcZlirionc. IciJ nie to ci>n;ludc th'iithe lin.incialditli~ulties
and other comoanv ~robieins were due to a shortage of ca~ital. for which the
como.nv .ook but ÏaLee-oans on whichit had to oav.co,siderahle servicecliareesu .
as well as to poor management. The principle cause, however, was the poor
organization and mistaken policiesof the commercialdepartment, with th? result
th& sales were not properiy thought out or financially viable, but were made
willy-nillysimplyto ensure a high turnover.
However, 1must add that nearly al1the loans recorded in the financial state-
ments do in fact exist,and that with verv fewexce~tions,al1of them can be Daid.
For a more thorough examination if al1the ~ccounts and the administrative
situation of the company, I refer you to Dr. Mercadante's annexed technical
report of 20.11.1969.
1am assigningthe foregoingto you so that appropriate action can betaken.
Palermo, 6 March 1970
(Signed) Giuseppe SIRACUSA,
Trustee in Bankruptcy. Document41
DECISION NO.5143 OF THE COURT OF CASSATIO1 NS,ECTION7,OCTOBER 1982
[ltalian iext notreproduced]
CIVIL SUPREMECOURT OF APPEAL ,DIVISION 7OCTOBER 1982, NO.5143 -SAN-
DULLI ACTING AS CHAIRMAN - SANTOSUOSSO ACTING AS DRAFl'SMAN - GRlMALDl
CICCOTTI )AYTHEON COMPA (AT~ ORNEY BISCONTI AND FAZZOLAR I)D THE
BANKRUPTCY ESTATERAYTHEONELSl S.P.A.
Confirmation of the Appeal filedin Palermo on 29October 1980
(omission)
COURSE OF THE TRIAL
With decision 7 May 1968,the Court of Palermo declared the bankruptcy of
Raytheon ELSl S.P.A. (Elettronica Siciliana). The Vittorio Emanuele Central
Savings Bankfor the SicilianProvinces,creditor of the bankrupt company for an
amount of approximately L. 645 million, not having paid after the sharing out of
the assets, sued the US Raytheon Company and, considering that the defendant
owned 99.15 oer cent of the holdines. as wellas al1the holdines of the comoanv
the ~achleti Laboratories, which Cwkd 0.85 percent of the rimainhg shaies Of
the afore-mentioned bankrupt company, requested the Court to declare its un-
limited liabilitvas sole oartner. under Article 2362of the CivilCode.
On the initiative of'the defendant, a preliminary jurisdiction regulation was
inserted, whichended with the decisi-n on the part of the SupremeCour- to
dismiss the appeal. After resuming the case, and having ended al1 other legal
proceedings, the petition was dismissed by the Court of Palermo with decision
7 July 1978;this decision was confirmedalso as far as the appeal was concerned.
The Court of Appeal of Palermo, with decision 13June-29 October 1980,after
disagreeing with the principle (Supreme Court of Appeal, 23 March 1971,
No. 848) wherebythe unlimited liability laiddown in Article 2362couldrefer-
ring solely to the hypothesis that the only shareholder is a normal individual,
ruled that the liability undertaken by a legal person with al1his estate, is neither
jundically nor economicallydiiïerent from the unlimited liabilityundertaken hy a
normal individual.
The Court, though, rejected the thesis of the applicability ofthe aforesaid rule
to the case in which in a limited comoanv there is a oluralitv of shareholders
represented by companies, altbough owned by a single'individual, pointing out
that this thesis hinges on the principle, diiîicult to surmount, of the juridical
autonomy of the sing.e companies of the g-.up in the carry~.g out of their
business.
The case envisagedby Article 2362of the CivilCode, which mayno1be applied
by analogy, applies only when there is a single shareholder, though through a
fictitious use of nominees.
From the critical assessment of the various elements pointed out by the appel-
lant hank the Court of Appeal reached the conclusion that the Machlett Laborato- DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 225
ries could not k considered mcrclyas a fictitiouspartner. This was also siifficient
in order to rule out the hypothesis that Machlett had merely acted as maiidatory
for the purchasc of the shares. Once establishcd that Machlett was - although in
a minimum way - interested in a shareholding in the ltalian company, R;iytheon
Company's wish not to become sole shareholder of the aforesaid ltalian company
in order to avoid the conscquences cnvisaged in Article 2362,could no1 be con-
sidered fraudulent.
The Court of Palermo also ruled that the behaviour attrihuted to Riytheon
--SI's directors. beine-outside the iuridical sohere of the US comoanv. mieht
generate its contractual or extra-con~ractual liability towards the ~avbgs~ank':
Finally, as regards the applicability of US law under Article 12of the prelimi-
nary provisions, the Couri iuled that the matter at issue implied a conirovcrsy
over thejuridical subjectivity of US companies. In any case, the Court concluded
that,
"had the US law been applied concerning the partner's liability for thc Com-
pany'sdebts - which the Court did not have the possibility to gel acquainted
with - the result would no1have been any different from the one reached by
applying ltalian law"
For the annulment of this decision. the Savinns Bank. beinr-the losine-.artv.
tileb:in appcal. accompdnicd h) six niuti\s> and illusiraicd hy3 iiiemorial. Mach-
Icii and Rayihciin Conipany oppose II. the Iïttsrh.ii alru fil:&siiunter.:ippcal
MOTIVES OF THE DECISION
The çcnaurcs oiihc sir moti\cs forihe 3ppral uerc subdiiided in IWO groupq of
irsucs h) ihc cùunicl <~l'ihcappell3nt. The tirsi one cùiicerns the ïppliçahilii) or
Article 2362.CivilCodc. whilr ihc second one rrrdrds F~iiIiliahilit$
In the first group ~aytheon's liability is sustGncd under the aÉore-mentioned
Article 2362 on the hasis of a numher of motives, which can he summcd up as
follows:
(a) Coincidence ktwecn the concrete case and the caseenvisaged bylaw.al lcast
from a subsiantial point of view, since the "ratio" and the letter of Article
2362 aim at avoidine the limitation of the liabilitv of the oartner who has
bccome ihc sole "oiincr" giithc Iimiicdcompany, :ilihough;hrough ïnoihcr
rublecl (iirsi. qccoiidand hcirnih nioiivc d'ihe hcar~ngufihc niinuiïrj:
h ihe iurmal wpnr;iiion heihrccn ihc 1u.o ~uh~cci~ nu lonecr hulJs. once II is
~roved thal one of them has acted as mandatorv of the-other and lias been
Lsed as a fictitious nominee; that which clearl; cmerges from the US law
(which the Court should haveexamined and applied) whichdoes not envisarc
the oresence of IWO subiects in the case of conirolled comoanies Ithird. fi6h
and'sixth motive);
(c)in the case of common intention on the part of a number of subjects to
purchase holdings in order to concentrate thcm in the hands of a single
subject, Article 2362applies. at least by analogy (fourth motive).
This Court deems that the problcms under suh (a)and (r) arc unfounded in
law. whereas the motive sub fbJ cannot k er-nted. on the er-unds of the iu-ee-s
findings.
This Supreme Court, modifying its previous approach (decision Na. 848 of
1971). recognized thal the rulc contained in Article 2362 of the Civil Code is
applicable, not only in the hypothesis of concentrating the shares in the hands ofa single partner, but also when this concentration is achieved in a single legal
person. (Supreme Courtof Appeal, No. 6594of 1981.)
Now for the first lime this Court is faced with the auestion as 10whether the
case envisaged in the aforesaid rule applies when a Îegal person has complete
control over the limited company, and owns up to 100percent of the companies
holding the shares of the former..
To this effect, il is sustained that also in this case the "ratio" of the rule
materializes, that is to say- avoiding any measure aimed at limiting the liability
of the single"dominus" who owtis the companv completelv.
Nor isihis conclusion contradicted by ihe.letter-of the law, which does not
refer to the formal "entitlement" of the shares, but concerns their substantial
"ownership".
This phenomena is expressly envisaged by the legisbatorin various other cases
of intermediation of nominees (Arts. 1471and 2360 of the Civil Code, Art. 5 of
Law No. 216 dated 7 June 1974);in such cases there is an "indirect" ownership,
namely, through other subjects, who are formally proprietors. This hypothesis,
being valid also when the holdings of a limited company are completely owned by
a single legal person, the plurality called for by the Iow is only apparent, and
therefore the principle of unlimited liability laiddown in Article 2362 of the Civil
Code becomes applicable.
This thesis is very subtly outlined. Indeed, in a number of cases, apart from
those indicated by the appellant, there is substantial ownership of the assets, vis-
a-vis their formal entitlement. However, it seems to this Court that the problem
mus1 be solved along guidelines which are completely opposite Io the ones put
forward by the bank appellant, in the same way as some fundamental principles
of the existing system on commercial law.
Indeed, the sector of limited companies in our legislation is characterized by:
la) the formal lecal oersonalitv. who does not allow the various subiects oDera-
dependence ;
(b) the principal of autonomy of the estates, which can be referred to the various
subjects, even though a single company or group has complete control over
the others;
[c) the principle of limitation of liability ofthe company to ils own assets and to
the respectiveshares in the company's capitalof individual partners.
The widespread interconnection of the phenomenon of the grouping or of the
control relation among companies also hinges on these criteria, where the depen-
dence and accessories among them, as stated on a number of other occasions,
does not produce either their identification or the absorption inIo the juridical
sphere of the rights and obligations of the other companies, but limits ils etTects
solelyto the fieldof activity and to the aims to be reached.
The existing law takes into consideration these phenomena, regulating some
consequences but without modifying the aforementioned principles on the issue
of personality and liability.
Article 2362 of the Civil Code, since it separates, in the case of a single share-
holder, the debt situation (Schuld) - which is always borne by the company -
and ils liability (Hafthung) - which applies to the estate of the single partner -
partially waives the aforesaid principles, but retains thejuridical autonomy of the
various subjects, nor does it contain any elements to consider the absorption in a
single shareholder of different partners who have a relationship of economic
dependence. DOCUMENTS ANNEXI~D TO THE COUNTER-MEMORIAL 227
Such regulation waivine the orincinle of liabilitv envisaaed in Articles 2325 and
2427 of the Civil Code, ictaken intoconsideratic& only for the hypothesis when
there is no more plurality of members, not under merely the economic profile, but
esoeciallvunder the iuridical one.
'ln othérterms, t<s regulation does not depend on the case of "complete con-
trol" of one of the shareholders as regards assets and management. but on the
hvoothesis when there isa sineleshareholder. either formallv oÏ for the asscssnient
of; merelyfictitious presenccof the other shareholders. '
Indeed, this Court has - on a number of other occasions - (decis. 2602170;
571173)declared that the unlimited liabilityof the partner under Article 2362of
the CivilCode can only berecognized whenthere isno longer plurality of partner,
through the demonstration of the fictitious or fraudulent nature of the names of
the shareholders. Such plurality does not exist, apart from the case of fictitious
intermediation of partners nominees. also in the case of purchase of shares
through mere mandatories of the onlypartner.
At this point, three specific complaints of the appellant must be taken into
account:
((1,thït the \sriouielcments proiing the ficiiii<)u~intermcJiation of the hlliihle~
Compan) kiic hccn arsesbed h! the Court of Appelil ..ly snal)iic;illy and
not globally;
(b) that the evidence that said Company had acted as mandatory has not even
been admitted:
(cl that, according Io US law, tliere is no distinction among companien which
are associated up to 100percent.
The first complaint is unfounded, sincethe global and conclusiveassessment -
which runs counter to the a~nellant's thesis - emeraed from the whole thoroueh
analysis carried out by the competent Court regardrng the various elements sub-
mitted.
The second comnlaint must be dismissed as well,since the Court of Aoneal..as
logicallyconcluJerl thît - oncc hlschlcit's pcrsoii:il intcresi in purchaung;ipari,
eien though vcry snilill. ol'the sh;ires ul'thc Iilili~nconipany uas demonstrlitrd.
il was uselessto prove a countcr-evidence on the basis of this conclusion.
As regards the applicability of the US law, it mus1 be pointed out in the first
place that the question raised in the framework of the preliminary jurisdiction
regulation as an alternative between the applicahility of Article 17or of Article 25
of the preliminary provisions of the Civil Code, was scttled in this latter sense,
with a decision of settlement of this Court No. 952of 1972.
As regards the unicily ofjuridical suhjectivity in the US law for the hypothesis
of formally plurimous shareholdings, the Court of Palermo, white pointing out -
on the one hand - that it had not had the possihility of getting acquainted with
this foreien law concernine the individual States. decided to dismiss the afore-
mciiiii>neithesir i>nthe b~&of ihr informüiiiin directly dcquired b) thel~dge
Ai regards ihe lirst groiip di issues rliisedb) the Savines Hsnk appell;int. the
unlimited Iiïhiliti enrisliecd in Article 2362 of the Civil Code materialires i>nl\
when al1the combany's slharesare in the hands of a singlepartner, and not whei
one of the partners has a domineering nosibon as regards management and the
eflects of said management on the Company's asse& and notrven when the
holdings of a second (or of other) companies are completely owned by the domi-
neerina partner.
~he-~xceptional unlimited liability of the shareholder of a limited Company,
sinceit waivesthe general principle ofthis matter, may not he applied by iinalogy.228 ELETTRONICA S~CULA
But the same legislativeconcrete case materializes both when some shares are
purchased by suhjects who had acted as simplemandatories and not as partners,
and when the ~luralitv of the Dartners. fictit~ouslvoreordained in orderio waive
the rule of Article 2362, is p;oved to be only apparent, since these people are
basically mere nominees, with no interest or power as regards the life and the
activity ofthe company, therefore cannot be considered as partners.
According Io the last thesis supported by the Savings Bank, Raytheon Com-
pany's employees,in their capacity as directors of the ltalian company Raytheon
ELSI, should have been judged guilty for violation of the general principle of
correctness and of the principle of the duty of care, with the ensuing liahility of
the aforesaid US company under Article2049of the CivilCode.
This motive mus1he dismissed as well, since the competent Court has pointed
out in this regard that the behaviour of the directors of the ltalian comuanv
Raytheon ELSI could not be referred to the US company, since there was no
evidencethat the ahove-mentioned directors wereauthorized to commit Raytheon
Company.
This statement also implies a concrete assessrneni,to which no exception may
be taken here.
Therefore, the appeal must be totally dismissed, with the consequent granting
of the examination of the appeal filedhy Raytheon Company.
The Savings Bank-the losing party- must he sentenced to the payment of
costs to Raytheon Company, whereas costs mus1be offsetin connection with the
Machlett, taking inIo account the smallentiiy of the respectivecounsels.
The Supreme Court of Appeal, 1Civil Division,joins the appeals Nos. 6481181
and 7873181filed against the first decision; it dismisses the first one and grants
the second. It sentences the Savings BankVittorio Emanuele, main appellant, to
pay the costs, amounting to L. 2,042,000(of which 2 million lireare for fees), to
Raytheon Company. It offsets the costs in respect to the Machlett Laboratories
Company.
Rome, 18June 1982.
The Draftsman,
(Signed) Fernando S~~~osuosso.
The President,
(Signed) Ruggiero SANDULLI.
The Division Director,
(Signed) Antonio CHIANESE.
Filed withthe Clerk of the Court's office
7 Octoher 1982.
The Clerk,
CHIANESE.
Filed in Rome on 12Octoher 1982.
No. 27783
(Illegible) DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 229
Document42
DECISIONNO.6712OFTHECOUR.I.OFCASSATIONISECTION,9DECEMB E982
(Ituliun text andEn,#sh trunslutionnu1reproduced]
Document43
DECISIO NO.2879OFTHE COURT OFCASSATION,9MAY 1985,GIURISPRUDE~ZA
Co,w~~nc~~rt'(l98,I, PAGES37-564
/Itrlian 1e.uandEnglishfrunslarivnno1reproduced] Document44
Maria Antonietta Morici
Notary Public
via Umberto Giordano n. 55
Palermo (Tel. 571059)
1.1am Ing. Guido Busacca,born at Messina on 27.4.37,and resident at No. 35
via Notarbartolo, Palermo.
1 graduated in Industrial Engineering - Electrotechnical Suhsection - on
13.11.59.
Ijoined Rÿytheon-ELSI in via Villagrazia, Palenno, on 1.8.60,and at the time
of my dismissalon 29.3.68,I washead of the microwavetube designdepartment.
2. As at 29.3.68Raytheon-ELSI bad fiveproduction lines:
(1) Semi-conductors.
(2) X-ray tubes.
(3) Black-and-whitecathode ray tubes.
(4) Telephone surgearresters.
(5) Microwave tubes.
The company's technicaland economicsituation can be descrihed as follows:
Semi-conductor line: the machinery was unserviceableand idle because it had
ken designed for germanium technology,which had been obsolescent for many
years; an attempt was in progress to produce Silicon diodes which, although
technicallvvalid. had no sienificantmarket.
X-rab iuhe Iine: ihc niachiner)HJS \,el) old ~ndthe proceising wci,c.irried c~ui
31 gr~airisk Io ihc OpCr.IIOI~.'~hpCrodusi u<i\quiie good bui iherc u;is no scope
for^he research reauired to develop it, for im~rovement to the plant or for
winning a share of'the market awiy from the 'large electromediczl apparatus
constructors, who had their own production lines.
The black-and-white cathode-ray tube line involvedthe majority of the active
labour force in operations that ougbt to have been automated but which werenot
kcause black and white consumption was heading for certain decline. The pro-
cesseswererather uncertain although the quality often happened tobe quite good.
The telephone surge arrester line was based on the exploitation of a patent and
utilized makeshift equipment and involved high risks,as Cobalt 60 radioactive
material was included in theproducts during processing.
The microwave tube line was based on the market represented by the Hawk
missile systemand a small research activityhad ken started up.
3.On the whole, the plant was to be considered uneconomic:
The plant engineeringand available technologieswere generallyobsolete.
The machinerv was intensivelv,xol.ited. old and hard to manare. The labour
force wascump;rïiii,cl~ unikilled. .A negligihlcimpulse had hecn-g\cn IO inde-
pendcni research 2nd ihcrc was no a\ail;ihle plan IO rcncw thc produciion Iines
(evenby means of licencing) DOCUMENTS ANNEXED TO THE COUNTER-MEMORIAL 231
4. The dismissalletters arrived in March 1968.Wewereal1dismissed exceptfor
a smallnumher of persons required forjobs involvingthe administrative, commer-
cial and technical aspects of a Company ceasing ils productive activilies. Work
had actually ceasedsome lime earlier with the strikesand occupation of the plant.
5. Eltel (set UD bv SIT-SIEMENS. now called ITALTEL. in 1972)look over
ELSl ~t;iri-u~i>&diions ucrc \Cr) Jirlicull The semi-ci>nJuct<> îrd X-r:iyiuhc
Iinesucre nul c\.en rcopcncd Andthe plilni uar m;iinlysmpped
Thc cdthodc-r;iv tiihc Iinc h<iJ IO hc rwcti$atcd in order id .ite ~h: 1,)ihc
labour forcewhile.awditingrestructuring.
At the lime this activity was resumed a licence waspurchased from llCA to
ensure that the processes werelessrisky. Also this line wasdismantled a couple of
years later.
The microwave tube line did no1 come within the SIT-SIEMENS range of
(telephone) products and was started up again only experimentdlly. linked with
the linesurgearresters. A research group was set up and considerahle investments
made, as a result of which products improved. Other licences were purchased.
Practically al1 the products were renewed. The line was sold ORto SELENIA
Industrie Elettroniche AssociateS.p.A. in 1985because of its greater aRnity with
the field of activity of the laiter; on the sdme occasion also the telephonesurge
arrpqterlincwascloceddown.
~~~~..~~ ~~~ ~ ~~~ .....~
The lines set up in the former ELSI plant to replace those closed down had no
relation to the latter as regards either technology or-.quipmen. .for example:
telephone cahle radio broadiasting, energy stations.
(Signed) Guido BUSACCA
Palermo, 30.10.87.
AUTHENTICATION OF SIGNATURE
1, Dott. Mana Antonietta Morici. Notary Public in Palermo. with office at
No. 55 via Umherto Giordano, registered on the List of Notaries of Prilermo,
herehy certify that, after heing duly warned of the penal consequences of false or
incompletedeclarations under lawNo. 15of 4January 1968.Ing. Guido Busacca.
born in Messina on 27 April 1937 and resident at No. 35 via Notarbarlolo,
Palermo, of whose identity 1,Not;iry Public, am certain. made and put his signa-
ture to the ahove declarations.
Palermo, thirtieth of October nineteen eighty-seven.
(Signedl Maria Antonietta Monici DOCUMENTS ATTACHED TO THE
COUNTER-MEMORIAL OF ITALY
Unnumbered Documents, Volume 1
Nom VERBAL OEF THEEMBASS OYF THEUNITED STATE SF AMERICA R,OME,
7 FEBRUAR1 Y974
No. 51
The Embassy of the United States of America presents itscompliments to the
Ministry of Foreign Affairs of the ltalian Republic and has the honor to submit
herewith the documented claim of the Government of the United States of
America on behalf of Raytheon Company and Machlett Laboratories, Incor-
porated.
The documental claim, consisting of five bound volumes in English, includes
the sworn statement of claim of Raytheon Company and Machlett Laboratories,
Incorporated, two legal memorandums, and 138annexes in two volumes.
The claim is for $7,225,968, plus interest, fronl 30 lune 1971, and is based
upon illegal actions and interferences hy ltalian authorities contrary to treaty
provisions, ltalian law, and international law which precluded an orderly liquida-
tion under the laws of ltaly of ELSI, S.p.A., a wholly-owned Italian subsidiary
of Raytheon Company and Machlett Laboratories located in Palermo, Sicily.
It is established from the evidence that Raytheon Company and Machlett
Laboratories, Incorporated, are now and have been continuously nationals of
the United States since the date the claim arose on 1 April 1968.The evidence
also establishes that ELSl S.p.A., was incorporated under the laws of ltaly and
was owned at such lime 99.16 ner cen, ,v Ravtheon Co.oa,v and 0.8. ner cent
by Machlr'ttLlih<~rtories.In;\)rju~raied.
The cvidcnce also ssilibli\hes thdi u11bcc~mcappdrcni that ihc cxicn\i\e
efforts oi ihc aboie-mentioncd cùmn.inies io mdkc FI.I\i.ihle clcmeni in ihc
Italidn ccononi) u<iuld noi suiceei. E1.Sl.s Bo~rd of Directors dc;ided on IO
March 1968io isdse iull-sxlc produition. disrni,r on 29 Sl1968h.IIIbut I?O
employeesand to liquidate in an orderly fashion. Asa result of thisdetermination,
the Mavor of Palermo. on 1 Anril 1968.actine in his caoacitv as an official of
the n>ii;>nalc?ù\ernment.rcqui~~iioncdthe EL<I phni anh III>quipmrn~Corsi\
months Thc Ma!or'< action ua.; appealeJ h) FI.SI io ihc Prcisii ,if P;ilcrm<i.
The cvidcncc al,o cst;ihli\hes ihat ELSl oficcrs 3nd dircctùr~. wiih finnncial
obligations falling due and no assets from which they could be satisfied, were,
under Italian law, forced to place ELSl into bankruptcy on 26 April 1968.Under
the bankruptcy laws of Italy, ELSI los1complete control of its assets, the most
desirable of which were soldto ELTEL, a corporation controlled through IRI,
by the Government of Italy. Notwithstanding the illegalrequisition and the filing
of a voluntary petition in bankruptcy, the Prefect of Palermo failed to act
promptly on ELSi'sappeal on the illegalrequisition. It wasnot until20 November
1969,a full year and seven months after the appeal was filed, that the Prefect
held that the requisition action of the Mayor was illegal.It was a hollow victory
as ELSl was not legally in a position to reassert itscontrol over its property and DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 233
proceed with its intended orderly liquidation. Based upon the Prefect's decision,
the curator in bankruptcy instituted a civilsuit against the Mayor and the lnterior
Ministry of the Italian Republic for damages resulting from the illegal requi-
sitioning. As a result, the Mayor appealed the decision of the Prefect to the
President of the ltalian Republic who, on 22 April 1972,confirmed the Prefect's
finding that the Mayor's action was illegal.
It is clear from the legal opinions submitted with the claim that the iippeal
taken 10LhePrefect of Palermo was the onlv l.eal-remedv available 10 Rastheon
Company and \I;ichleti Llihor~torics, Inc~irpor:ilr.il1,)ohlain rcdrcbs. 1i.i.ils0
clcar (rom the doc~nicntcd claim th;ii iimounih rc3li7ed2nd 1,)hc re3lircd n) the
(braior in the hankruri. ..procesdinrs nill niit hc sufficicni Io ..itidyfull\ ihc
preferred creditors, to say nothing of-the general creditors and the stockhoiders.
As compared to the skilled personnel ELSI assembled for the orderly liquida-
tion, the curator, even under the best of circumstances, was handicapped in
realizine the full value of th..nroDer,v. The curator was further handica..ed bv
ihc Cio\~crnmcnt'sconlrol and cvcniual purchxsc oi ihc asset, ihruugh ELTtL
ai a reduccd pnce. !dorco\cr. Ra)thcon Compdny and Machlcii Laborniorics.
Incorriuraicd. u,crcdc~ri\cd of iheir sirickholdcrs' righis of liquid-ting ELSl nnd
of wirking out favouiable settlements with ils crediïors.
The amount of compensation claimed is based upon the difference betweenthe
monetary position in which Raytheon Company and Machlett Laboratories,
Incornorated. would have been had thev beenallowed to oroceed with an orderlv
Iiquldaiiiin<iiEI.SI, as cx~rnp~rcdio ihc morieinry po,iiion ihr) nou f~;c
In iidditiimid the ~.onipcn\xtiond~inlcd. 111%~lso requcrtcd th~i OieGoicrn-
mcni or Iidy arranrc 10 ilismi5s or heiilc It.ililn hdnk suiis ;icdin\i Rlvihcon
Company and ~achiett Laboratories, Incorporated, presently pënding bef;~rethe
ltalian courts, for obligations incurred by ELSI, and which obligations would
have been settled during an orderly liquidation but for the illegal actioiis and
interferences of ltalian authorities. Accordingly, should Raytheon Compaiiy and
Machlett Laboratones, Incorporated, be forced Io pay judgments of ltalian
courts, the amount claimed will be increased by the amount of such judginents.
The Embassy of the United States of America is prepared 10enter in10negotia-
tions with the Ministry of Foreign Affairs of the Government of ltaly with a
view 10 concluding an expeditious and equitable settlement of the claim at a
mutually convenient lime.
The Embassy of the United Statcs of America takes this occasion 10 renew to
the Ministry of Foreign Affairs ils expression of highest consideration.
Embassy of the United States of America
Rome, 7 Februÿry 1974.
THE CLAISI OF RAYTIiEON COSIPANY AND THE MACHLE'iT
1.AHORATORIt.S. INCORPORATt.1). ,\GAINST THE GOVEKNMENT
OF ITALY IN CONNECTION WlTH RAYTHFON-ELSI S PA
The Govemment of the United States of Amenca hereby makes claim against
the Renublic of ltalv in the amount of $7.225.968 (Lire 4.516.23 million at the
cxcha~gr rate of O0616) for Jamagcs ruffcrcd b! 1hc'~mcricancorporale iiaiiiin-
21s. K;iyihci>nCompany 2nd Th', M~chlcii I..ihuraiorics. Incorporaicd (hcrcin-234 ELETTRONICA SICULA
after respectively callcd "Raytheon" and "Machlett"), as a result of acts and
omissions of the Republic of ltaly in conneciion with Raytheon-ELSI S.p.A.,
their ltalian subsidiary (hereinafier in this claim. together with predecessor cor-
porations,called "ELSI").
From the inception of iheir respective associations with ELSI, which began
with the ownershio of only a few shares of stock, Raytheon and Machleti on a
coniinuing hïsis niade eno.mous cfforiIO increliseELSI'Stcchniial and business
iompetcnce. Esxniial rela1ii)nships uilh Italiiin firmq u.rre soughi to unlock
Iialian markets Ilowe\cr. durine 11sor>erÿti\ecnisirnce (1953-IYhRI.FI.SI u;ii
plagued with problems which preventédit from realizing ils poteniial. During
1967,Raytheon and Machlett made a massive effort to revitalize ELSl by advan-
cing laree amounts of new caoital. seekine new Italian oroducts. oartners and
ma;ket<increasing manageriai skili and reiucing costs. ~hen it bkame clear in
the soring of 1968that Raytheon's and Machlett's effortsto make ELSl a viable
self-sbffic<entelement of the Italian economy were not to meet with success,the
claimaints were left with no other solution but the liquidation of ELSl in an
orderlv and efficientmanner. At the ooint of the decision to liauidate ELSI. the
~overknent of ltaly seized E~~l's'assets without taking any corresponding
responsibility for ils liabilities, causing ELSl's bankruptcy, the destruction of a
laree share of ils asset value and substantial losses 10 ~avtheon and Machlett.
The actions of the Government of ltaly violated ltalian law and the standard
of conduct prescrihcd bycustomary and conventional international law.
The Statement of Facts on which this claim is based are set forth in this
Part 1.The legal precedents supporting the position of Raytheon and Machleti
reaardinb: the violation of ltalian and International law are set forth in Part II.
~6e supiorting documents are displayed in the Appendix.
PART1.STA~EMEN OFTTHE FACTS
[Nor reproduced]
MEMORANDUM OF LAW IN SUPPORT OF THE CLAlM OF
KAI'THEO'I COh4PANY AXD THE MACIILETT LABORATORIES.
INCORPORATEII. AGAINST TIIE GOVC.'RNMENl'01' ITALY IN
CONNECTION WlTH K.AYTHEON-FI.SI SPA.
Introduction
In the statement ofls claim against the Government of Italy, the Government
of the United States has shown that two of its comorate nationals. Ravtheon
Company and The Machlett Laboratories, Inc., maéesubstantial contributions
of "know how" and investment of funds in an ltalian corooration, last known
as ELSI, S.P.A. Over a 13-year penod, Raytheon and Maihlett, in addition to
their technical contributions, invested over2,600 million lire in equity and
guaranteed loans in the Italian enterprise, without receiving any dividends on
their investment. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 235
ELSl's inability 10establish itself as a self-sufficiententerprise in the Mezzogi-
orno stemmed largely from the failure to gain full access to ltalian markets. In
order to reach such markets, efforts were made to associate with appropriate
Italian partners. Assistance was sought from public and private sources. ELSl
made efforts to ohtain privileges, subsidies, franchises, marketing advaritages,
and governmental investmcnt enjoyed by other ltalian corporations. Although
the critical nature of ils needs in this regard was graphically portrayed to the
governmental officials, ELSl's efforts were largely invain. Accordingly, in view
of its unprofitahle operations and inahility to achieve measures which would
correct its marketing and financial situation, ELSl's Americanstockholders were
left with no alternative to the liquidation of their ltalian corporation.
Even al this point, instead of the Government which could have taken con-
structive action10find a lasting solution to ELSl's problemsand thus to preserve
the employment base in the Mezzogiorno. instead undertook a series of actions
to prevent liquidation.
Belatedly, when it was clear that ELSl had no course open to il other than
sellingils business and property to the highest bidders, in the besi interests of ils
creditors, the Government of ltaly faced the political, social and economic conse-
quences of the liquidation of ELSI, a major enterprise and employer in Sicily.
Beset with the results of ils own inaction, the Government of ltaly then illegally
seized ELSl's assets without taking any responsibility for its liabilities, thereby
forcing ELSl in10 bankruptcy and the sale of ils assets to a governiiiental
corporation. The management and control of ELSI was taken away from the
claimants, and, as a consequencc, thcy suffered great losses.
Among the steps taken by the Government of ltaly were:
(O) The Mayor of Palermo, acting as an officialof the national govern-
ment, seized ELSl's assets.Such interference at this point wrested the control
and management of ELSl from the claimants, plunged ELSl in10bankruptcy
and deprived them of their interests in ELSl's management and property.
permanently. No compensation has ever been paid or even offered the
claimantsfor the taking of their property and management interests in ELSI.
(b) The Prefect to whom ELSl promptly appealed, failcd to rule on
ELSl's appeal for over one and one-half years following the taking by the
,Mayor of Palermo.
(cl The President of Sicily announced the Government's opposition to
the sale of ELSl assets and threatened Raytheon and ELSl with prolonged
and extensive inlernational liiigation.
(di The ltalian Government publicly announced that a Goveriiment-
owned corporation, IRI-STET, would "take over" ELSI, thereby preventing
other competing buyers from attempting to purchase the assets.
(e) The Italian Governmeiit allowed the ELSl workers to occupy the
ELSl plant illegallyfurther cutting off any sale possibilities.
(f) Banks owned by the Government through IRI, as predicted by Presi-
dent Carollo, initiated lawsuits now totalling Lire 4,400 million kigainst
Raytheon and Machlett for unguaranteed loans which the banks had made
to ELSI.
In the following pages, the Government of the United States will show that
the actions of the Government of ltaly were in clear violation of applicable treaty
provisions and of customary international law. The Government of the United
States willfurther show legaljustification for the amount of $7,225,968or 4,516.23
million lire at the conversion rate of 0.0016 for the damages suffered by the
claimants as a result of the acts and omissions of the Government of Italy.1.The Communityof lnterests of the Governmentsof ltaly and the United States
in theEquitable Resolutionof this Claim
At the outset, it is essential to recognize that the Governments of Italy and the
United States enioy a similar understanding of the necessity,through international
law. to orotect iniernational investments.~~lthoueh demonstrated in a numher
of ways over the years, the rnost concise manifeslaiion of this understanding is
found in their bilateral Treaty of Friendship, Commerce and Navigation and a
Supplemental Treaty, which respeciivelyentered into force on 26 July 1949;and
2 March 1961(hereinafter sometirnes cailed the "FNC Treaty")'.
Among the provisions of the FNC Treaty are the following which are directly
applicable to this claim:
1. Recognition that protection encourages foreign investmeni to the mutual
benefit of hoth couniries'.
2. Authorization for citizens of either State to "organize, control and manage
corporations" in the territory of the other "for engaging in commercial, manufac-
turing processing and scientificactivities"'.
3. A prohibition against the taking of property of the corporation of one
signatory may not be taken within the territories of the other without due process
of law and without the prompt payment ofjust and effectivecornpensalion4.
4. lnterests held directly or indirectly by corporations of either signatory in
property within the territories of the other are aforded the protection of Article
V, paragraph 2, of the FNC Treaty, the pertinent substantive portion of which
is set forth in the preceding paragraph 35.
5. A prohibition against either signatory taking arhitrary or discriminatory
measures within its territories in:
(a) preventing the corporations of the other signatory to control and manage
enterprises which such corporations have been permitted to establish or acquire
in its territories, or,
Ib. imo.irine such coroorations' leea-,v acaui.ed riehts and interests in such
cnierpriscs or in ihc invcrimcni5 ihc) hase made. whcrhcr irom ihe in\ejinieiii
of funds through loan,. ihc acquisiiion of shlire. iif>io:l; or oiheruire. ur from
the furnishing of materials, equipment, services, processes, patents, techniques or
otherwise6.
6. Provision for the rights of the corporations of one signatory IOacquire and
freely dispose of real and personal property in the territories of the other7.
7. The reauirement that each sienatorv afford the orooertv of coroorations of
ihe oihcr ..the moi! constant prui~ciion and sccuriiy" ;iRdrikhi io "enoy in this
Q
rcrpeci thc full proteciion and sccuriiy rcqulrcd by inicrnaiional Iliu,"
8 A orohibiiton arainsi unlliuful cnir). or rnole,ttng of thc ducllines, ware-
houses, 'factories, ships, and other places of husiness,and ail premis& thereto
'Trc.ii) oi Fricndrhip.Cummcr:c dnJ K~rlg~iion 79 L'.\'TS171 64 Siai 2251
AgreementSupplrmc~niin igcTrcaiyoiFriendrhip.Commrrcr dnd Udvigaii.in401 UV7S
~.6. 12 L'ST 131.
Preambleto the 1961 Supplementto the FNCTreaty.
' FNCTreaty,Art. IIIpara. 2.
" Ibid.Art.V. para. 2.
' FNCTreaty Protocol. para. 1.
' FNCTreaty. Art.meV11.para. 1..
Ibid.Art.V. para. 1. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 237
appertaining, of corporations of either signatory, located in the territories of the
other'.
9.Assurance that the rights and privileges of an economic nature graiited hy
one sienatorv to its oubliclv owned or controlled enter~nses will be exlended to
the p&ateli o~ned'enter~rises of the other where boih such enterprises are in
competition with each other. Supplying goods or services for government use is
exclüded, but suppl inggoods and services for the use of government-coiitrolled
corporations is not Y
10.A requirement that existing and future legislalion providing special advan-
tages to firms engaging in the industrialization of Southern ltaly is specifically to
apply to US investments made in Italy3.
This clairn should be considered in the spirit of the FNC Treaty which reflects
the attitudes of both Governments toward international investment, and the
desirability of protecting and encouraging il. Nol only does the FNC Treaty
.re~-~~~~ the soirit in which this claim should be considered: it. moreover. as
shown by the foregoing list, provides many detailed rules on whi'chthe (:lai& is
based. It also enunciates the Governments' adherence to aiTording international
investment the "full protection and security of international law"'
II. The Supremacy of International Law
~~ ~ ~-hts and dulies between States and foreien -ationals are established bv
iniern~tional Iau uhich. in the contcrt of this rldirn. 1ssupcrior icid,imc,ti~. Ihw
Thc Iialian Consiitution of 1948 Iike thcconrtituti~insofm3n!. Staic\, prii\,iJcr
in Article 10:
"The Italian juridical system conforms to the generally recognized prin-
~~rles of international law.
The juridical status of the foreigner is regulated by law in conformity with
international rules and treaties . ..'"
The Harvard Draft on the Law of Responsibility of States sets forth this
universally recognized rule as follows:
"Art. 2. The responsihility of a state is detemined hy international law or
treaty, anything in its national law, in the decisions of its National Courts,
or in ils agreements with aliens, to the contrary notwithstanding6."
' FNC Treaty, Art. VI.
Ibid, Protacol,para. 2.
FNC TreatySupplement.Art. V.
Although the sources of internationallaw are variouslydefined,Article 38 of the
Statuteal the InternationalCourt of Justiceorovidesa -oodkev.
Article38.1.The Court w,hasefunciionis10decideinaccordancewithinternational
lawsuchdisputesas are submittedto il, shallapply:
(O) international conventions.whether general or particular, establishingrules
expresslyrecognizedby the contestingscates;
(b) internationalcustorn.as evidenceof a generalpracticeacceptedas law:
(cl the generalprinciplesof lawr~ognizcdbycivilizednations:
(di subjeclto the provisionsof Article59.judicialdecisionsand theteachingsof
the most highly qualifiedpublicistsof thevariousnations,as subsidiary means for
thedeterminalionof rulesof law.
2. This provision shallnot prejudicethe powerof the Court Io decide a case ex
oequoer bono. if the partiesagreetherela.
Peaslee11, 280. atranslation.
See comment, 23 AJIL (1929).Spec.Suppl., 142.145,forcitations. In its draft on the Law of Treaties. the Harvard Research, with a wealth of
citations. unequivocally applies the rule to Treaties as follows:
"Art. 23. Unless otherwise provided in the treaty itself, a State cannot
justify its failure to perform its obligations under a treaty because of any
provisions or omissions in its municipal law, or because of any special
features of ils governmental organization or ifs constitutional system'."
Citations of authority for ihis generally recognized rule are limited in ihis brief
because of their abundance rather than their paucity. The rule is set forth in
numerous decisions of international courts2. It has been accepted wiihout chal-
lenge in the respective practices of the Governments of ltaly and ihe United
States. It needs no further elaboration.
III. ActsandOmissionsof the Covernrneno tf Italy in Contraventionof
CustomaryandConventional International Law
A. The TukingofELSl's Properry
As shown in detail in the statement of claim, the illegal requisition of ELSl's
property occurred at a crucial time in ELSl's existence. The requisition and the
failure of the ltalian judicial sysiem to act promptly on ELSl's appeal of the
illegal requisitionplummeted the Company into bankruptcy. It permanently de-
prived theclaimantsof their righi IOmanage the corporation and of iheir interests
in the ELSl property. As described in the claim, governmental officiaisthwarted
the sale of the desirable portions of the ELSI properiy to anyone else, and
fostered its sale to a governmcnt-owned and controlled corporation. The result
in the final analysis is akin to confiscation.
The illegal nature of the taking is, moreover, established by ils violation of
applicable treaty provisions, general rules ofcustomary international Iaw, and of
domestic ltalian law.
1. Prevenringthe EflecriveConrroland Managemenio/ELSI
Raytheon and Machleti were assured the right to pursue direcily or through
an ltalian subsidiary, without interference or discrimination. the manurÿciuring
and scientific activities in which ELSl was engaged. Such rights were providcd
by Article 1, paragraph 2; Article II, paragraph 3: and Article III of the FNC
Treaty.
' 29 AJIL (1935).Supp.. 1029-1044.
The PermanentCourt of International Justice, onumerous occasions.mnintained
that sincethe rights and obligationof aStalein ils international relatiare determincd
to detemine the legalityofilsconduci.For cxample,ipifheldin thecaseconcçrningaC<onuin
Germnn Inreresisin PolishUppcrSilesio(Merits),P.C.IJ.. Ser A. No. 7(1926).that useof
PalishlawinexpropriatingcertainGermanpropertiesinPolandwas a violationofPoland's
treaty,obligationstowardsGermdny.TheCourt stated,"Any[Polish]medsureafiectingthe
property, rights and iniereslsf Gcman subjectscoveredby Head IIIof thc Convention
... whichoverstepsthe limitssetbythe generallyacceptedprinciples of internationallÿw.
is. therefore,incompatiblewith the régimeestablishedunder the convention".
See alsoFrer Zone3 case betweenFrance andSwitzerland.wherethe Court raid "that
Francecannotrely on herownlegislalion 10limitthescope ofberinternational obligations".
P.C.I.J..Ser. A. No. 2(1930).12and SPI AlB. N0.46(1932). 167. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 239
Article 1 of the FNC Treaty Supplement, moreover, granted the right 10
effeclively manage and control ELSI. The full text of this significant Article
provides:
"The nationals. coroorations and associations of either Hieh Contractine
Party shall not hi sutijected Io arbitrary or discriminatory measures kithi;
the territories of the other High Contracting Party resulting particul;irly in:
(a) preventing their effective control and management of enterprises which
they have been permitted to estahlish or acquire therein; or, (b) impairing
their other legally acquired rights and interests in such enterprises or in the
investments which thev have made, whether in the form of funds (loans,
shares or otherwlse), Gaterials, equipment, services, processes,patents',tech-
niques or otherwise. Each HigliContracting Party undertakes no1to discrimi-
nate against nationals, corporations and associations of the other High
Contracting Party as to their obtaining under normal terms the capital,
manufacturing processes, skills and technology which may be needed for
economic development."
The requisition of the ELSl property and the subsequent events, which were
foreseeably and proximately caused by the seizure, clearly violatedthe claimant's
right to effective management and control of ELSI. In fact, they prevented an?
management or control by the claimants whatever. The seizure of ELSl's assets
al the fragile moment of 1April 1968,forced ELSl's bankruptcy and assured the
eventual sale of its valuable assets to a corooration owned and controlled bv the
Go\:rnrnent 01'lt.il). ELSI', cuiiirol and inaiiilgcnicnt \ierc pcrm~nciitl! \ireitcJ
irrini ihc CS nltional il:iim.iiit.Aclc:ir hrcilih <>IihirIreJt) prd\l\ion rc\ulteJ.
2. Impairment ofLegally Acquired Rights undInterests
Under sub part (h) of the treaty provision quoted in the preceding par:igraph,
the Government ofltaly bound itsçlfnot to impair the claimants' legallyaçquired
rights and interestsin enterprises which they have been permitted to establish or
acquire or in investments which they have made. The requisition of ELSl's
orooertv at the crucial ooint in ils financial historv of 1Aoril 1968.imoaired the
éntérp&eELSl and the ciaimants' investment in it to tLe point of éxtinction.
Again, a clear-cut, far-reaching and irreparable breach of this treaty provision
3. The Protection of Rightsand Inrerests
Before leaving the provisions of Article 1 of the FNC Treaty Supplement,
attention should be focused upon the fact that the provision clearly establishes
the right to protection of property in which they have indirect interests. Also
eliminated is the possibility of narrowly defining "interests" so as to eliminate
some of the claimants' real damage. Although there are excellent grounds for
this claim, hased upon customary international law which are set forth below in
this brief. Article 1of the FNC Suoolement eliminates the ouestion of whether
the cl;iinianthmay bring 3 clilinh.iwh upon thclr rh:irehc>lde;xnd cithcriiitcrcjls
in ELSl l'und, :id\:inceJ. uhcthci h! lo:in. cap~t~Ii~aiir>nr rc~.ip~taIi~ati<''nor
otherwise" are recoenized as orotcctable under the Treatv
The provision ais8 recogni&s that rights, interests or investment in enterprises
may be created by advancing items other than money. Investment may be made
in the form of "materials, equipment, services, processes, patents, techniques or
otherwise". Again, the Treaty recognizes the many ways in business practice that
investment rights or interests in a foreign enterprise are created, and the IwoGovernments wisely and equitably provide protection for al1 types of rights,
interests, and investments, including the interests of a parent corporation which
has invested in its subsidiary by providing it materials, equipment and services
for which it has not been paid.
4. Taking Wirhour Due Processof Lobvand Wirhour Prompt Paymenr of Jusrand
Effective Compensorion
Among the rights of members of the community of nations is the right to
protection by international law of the persons and property of their nationals
within the territories of other States.
The taking of ELSl's property without payment of prompt, adequate and
effectivecompensation was in violation of Treaty provisions, customary interna-
tional law, and the domestic law of Italy.
Private property may not be taken from a forei nef without the prompt
payment of just, adequate and effectivecompensation .
(o) Taking
The requisition of ELSl's property constituted a "taking" even without the
suhsequent consequences which deprived the claimants of their property rights
and interests permanently. A "taking" may be either temporary or permanent.
Accordingly, although the requisition decree purported Io seize the property for
a six-month period, subject to extension if deemed necessary, it constituted a
"taking" ab inirioas the term "taking" is interpreted and understood in interna-
tional law.
Article 10of the 1961 Harvard Draft Convention on Responsihility of States
for Injuries to Aliensdefines a "taking" as:
"3. (a) A 'taking of property' includes no1 only an outright taking of
property but also any such unreasonable inrerference wirrh heuse.eniovmenr.
or di<pir<ilo/propiprri3s Io justify the iniercnïc ihat the owncr thir&f ,vil/
nnr h~uhlr io USP. rnjnj. ordi.<po.wo/ rhppri1ppr1.v,iirh,n o rc~oconuhlepriod
n/rr»it,after the incepiion of >uchinterference.
fbi A 'takina of the use of the ~rooertv' includes not onlv an outrieht
taking of use hÜtalso any unreasonable'inre;/erencewirh rheuséorenjo>'minr
ofproperiy for a limiredperiod of rime2." (Emphasis added.)
The Mayor's actof requisitioning ELSl's property and the Prefect'ssubsequent
delay in ruling on ELSl's appeal amounted to a "taking" of ELSl's property.
Under principles enunciated in the ahove provision of the Harvard draft, it is
clear that interference with ELSl'sproperty insured that ELSl would not be able
to use or dispose of its property within a reasonable time. Considering the
circumstances surrounding ELSl at the time, the requisition insured that ELSl
would never be able to liquidate in an orderly fashion and in effect forced ELSl
into bankruptcy. This conduct certainly satisfies the test of "conduct attributable
' Bttvaglini."Nazionalizzazione",NovissirnoDigesiolrnliono XI, p. 150; De Nova,
"L'Esproprioin Diritto Inlernazionale"II Poliiico1951, p.261; Quadri, La Suddiionlo
zianene1DirittoInternazionale",,Rivisiadi Diririo Inurnnrionnl1953,p. 120.onalizra-
Art. 10.para. 3, draft Conventionon the InternationalResponsibilitof States for
Injuriesto Aliens,DraftNo. 12.Apr. 15,1961.Reporters,Sohn and Baxter, Harvard Law
School.p. 101:55 Am. J. Inl'L.(1961).553. DOCUMENTS ATTACHED TO THE COUNTER-WEMORIAL 241
to a Statethat isintended to, and does, effectivelydeprive an alien of substantially
al1the benefit of his interest in property"'.
As clearly demonstrated in the Statement of Claim, the Government of Italy
was well aware of ELSl's financial straits. It was precisely for this reason (to
prevent the consequent orderly liquidation) that the Government requisitioned
ELSI's property. Thus, the intent 10 take the property from ELSl permanently
and the effect of such an actual taking are both present in this case. Hiid the
Government of ltalv reauisitioned the assets of a comDanvwhich was not in the
proce<s<>I1 .t4uida~i~n,had the Prclict proniptl) ovcrhrn;d the desrce. and h3J
ihc cornp.in) sutfercd no subst.iniial interlcren~csithitj.~~.tiiitici,iir daniaas
3 rc>uIt.3 reaui~ition mirhi noi sonstiiiite a 't.iking" of prupert).. In IiLSl's
situation. the tacts clearlv~showthat the reauisition did amouni toa "takine of
property". Even the loscof title did predic~ablyensue when a major of
ELSl's assets were sold by the Curator in hankruptcy to an Italian Government
corporation. The fact thai the requisition was theoreiically only for a temporary
period did not change the effect on ELSl - the immediate and permanent
deprivation of its use of its property and subsequent loss of legal title.
Thus, having established that the requisition by the Government of ltaly
suhstantially exceeded the minimum requirements of the international law to
constitute a "taking" of ELSl's property, we tum to the question of whether just
compensation was either offered or paid.
The Government of ltaly did neither.
h. Thc Prohibition apinsi idking Pruptri) Rights and Intcre~t~
Wiihuui Due Proceis or Withuui Pa,mcni 01'Pr<)mpt..Adequ,~tc.inil
Effectivecompensation
The first sentence of paragraph 2 of Article V of the FNC Treaty provides:
"The property of nationals, corporations and associations of either High
Contracting Party shall not be taken within the territories of the other High
Contracting Party without due process of law and without prompt payment
of just and effectivecompensation,"
Paragraph 1 of the Protocol to the Treaty makes clear that the above provision
auillies to Ravtheon's and Machlett's stockholder and other interests in ELSl
;Rd the ~~~~pro~ert~.It provides:
"1. The provisions of paragraph 2 of Article V,providing for the payment
of compensation, shall extend to interests held directly or indirectly by
nationals, corporations and associations of either High Contracting P;irty in
property which is taken within the territories of the other High Contracting
Party."
Again, the two Governments, in order to encourage foreign investmerit and
the benefits which flow therefrom, have eliminated the technical distinction be-
tween rights and interests in property. The Treaty safeguards both the rights and
interests in property held directly or indirectly. Raytheon and Machlett invested
in ELSI over 12,000million lire in the manner contemplaled by this Treaty, and
accordingly their property rights and interests held indirectly through ELSI were
afforded protection from the taking of such rights and interests withoiit due
process of law and without the prompt payment of jus1 and effectivecompensa-
' Art. 10,para. 3,draft Convention on the InternationalResponsibilityof Statefor
Injurieto Aliens,DraftNo. 12,Apr. 15,1961.Reporters,Sohn and Baxter,Harvard Law
School,p. 101;55 Am.J. Inr'L. (1961),553.242 ELETTRONICA S~CULA
tion. The taking of such rights and interests of the claimants without due process
of law and without prompt payment ofjust and effectivecompensation constitutes
a clear treaty violation hy the Government of Italy.
Moreover, the constitutions of almost al1countries of the free world prohibit
the taking of private property without payment of compensation. The Constitu-
tion of ltaly is no exception. Article 42 of the ltalian Constitution provides:
"Property is public or private. Economic assets helong to the State, to
institutions or to private persons.
Private o...ertv is recoenized and euaranteed bv law. which snecifiesthe
mode, oiacquisiii<)n and :nlo!nicni ihcreoi. 3s rl\11s111111iin order IO
a\rure 11,socicilfunciion and render itdccei~ihle IO 311
In c.iie, protided by la\<,UII~~~IrA<h.i~r~r>/<~.!»p.,~~vrr ~i,tte pruperi!
nia) be e.\propriated ior re.isons oi public intereri." (Eniphaji, addcdj
The US la\? is Iike ihat <>iItalv in ihir respect. The iifih ~mendmeni oi'ihe US
Consiituti<inxli'ordrprotection to prit31Cpr<~peri)and juii conipcnutl<ln whcn
il15 takcn for puhlis uic. The applic:ibls portion of ihis dmcndmeni proiidc,:
"No person shall be . . deprived of life, liberty, or property without due
process of law; nor shall private property he taken for public use, without
just compensation."
The requisition of the ELSl property was illegal under ltalian law. It was also
held to be so hy a favourahle ruling on the appeal of ELSI'.
ltalian courts have taken a similar position with respect to the effect in Italy
of a foreign nationalization where full compensation is not guaranteed. For
example, a 1956decision of the Court of Appeal of Bologna reached this result
in the case of Svir NsrodinPadnik and Bara A.S. v. SocietaB.S.F:Srfiung and
orhers.The Court nullifiedthe extra-territorial validity inltaly of an expropriation
bv the Czechoslovak Government where oavmen. a,d valuation would he solelv ,
at ihs disiretion i)i ihs erpropriaiing adminirtraiii.e authnrit! in C'zc:hoslo\~dkix.
The case held ihkt under 5uch ctrcunistaiice\ priiper \tancl:trds uerc iioi eriah-
Iished uhi~hiv<>ulJproicct an ounsr ironi political and other discriiiiin3iion ~nd
would thus reduce ihe expropriation to an act of "real and pure confiscation".
Thecourt took the effectivemeasure of holding that nationalization under condi-
tions of this ty e would not "produce" a transfer of ownership of property
situated in ltalyP.
The taking of the ELSI property was without due process in further violation
of the Treaty provisions of ltaly and the United States. The taking runs counter
to court decisions handed down by the Courts of Italy. It contravenes the
provision of the Italian Constitution set forth above. It even has been declared
illegal by the Prefect in the appeal taken by ELSI.
The taking also is contrary to the generally accepted principles of customary
international law. In the Cerruli case3, the Government of Italy espoused the
claim of ils national against the Government of Colomhia. The latter had taken
properties of a Colomhian Companyin which an ltalian national held suhstantial
interests. The Government of ltaly vigorously pursued compensation for the
value of Cerruti's interestsfor many years. Eventually, the matter was arbitrated
' See Exhibits111-7and 111-8forthe textof the appealof ELSI and thedecisionof the
Prefectone and one-hall yearslater.
Reportedin 5 ArnerieoJnournao lf Cornprorive Lnw 641,642(1956).
' De Visscher,"Protection diplomatique desactionnairesdes sociétés" Revuededroit
inlernorionnelldelégirlariocomparée, 1934,pp.630-631; IV AJIL 1003et seq.conventional international law and in contravention of the law of most nations,
including ils own.
B. Occupaiion of ELSIS Plnnr
As sel forth in the Statementofthe Claim, hundreds of ELSI workers forcefully
occupied the ELSl plant.
The holding of the plant by the workers is illegal under ltalian law. Articles
508.633and 634of the ltalian Criminal Code clearly cover almost al1foreseeable
fact situations in which private property is aflected or perturbed by the violent
action of others.
Holding of the ELSl plant by the workers was illegal under some or al1 the
above-mentioned Articles of the ltalian Criminal Code. Translations of which
are as follows:
"508'. (Arbitrary invasion or occupation of agricultural or industrial
factories. Sabotage.)
Whoever invades or occupies someone else's agricultural or industrial
factory . ...wiih the onlv DurDoseof ~reventine or oerturbine the normal
c<iu<eif work. ts punishcd.b) 'imprisonnieni of;p 1; ihree y& and hy a
fine of not Iessthan Lire one-thou,and (nou Lire eight-thnusand) "
"633'. (Invasion of lands or buildings.) Whoever arbiirarily invades some-
one else's lands or buildings, either public or private, for the purpose of
occupying them or to othenvise draw profit from them, is punished, upon
demand of the private otîended person, by imprisonment of up to two years
or by a fine from Lire one-thousand to ten-thousand (now from Lire eight-
thousand io eighty-thousand).
The above punishmenis are inflictedjointly and the action is started by
the Officeof the District Attorney without demand if the crime iscommitted
by more than five persons, one of whom is armed, or by ntore rhan ien
persons.evm ii.irhoui ~t,eapons."(Emphasis added.)
"634'. (Violent perturbation of the possession of immovables.) Outside
the cases indicated in the ~recedinr Article. whoever bv violence to oersons
or by threat perturbs soieone else's peaceful possession of immovables, is
punished by imprisonment of up to two years and by a fine from Lire one-
thousand to three-ihousand (now Lire eight-thousand to twenty-four
ihousand).
The viol3iion i,constdered 69 ha\,ing ken commiited hy i,iolenceor thrcat
uhen 11 is commitied by more than ien person% "
Under the laws of any civil law country, including the ltalian law, when the
authorities have knowledge that a crime is king committed such authorities mus1
intervene immediately to stop the criminal action and to prosecute the ofïenders.
Articles 1and 2 of the Iialian Code of Criminal Procedure provide:
' Section508of the ltalianCriminalCode(approvedby RoyalDecree No. 1398 of19
October1930). which fallsunderthe followingheadings:
"Book 2.The CrimesinParticular. Title8.Crimes AgainstthePublic Economyl,ndustry
andTrade.Chapier 1.CrimesAgainstthe PublicEconomy."
Whichfallsunderthe followingheadings:
"Title 13.The CrimesAgainsithe Property.Chapter 1.CrimesAgainst the Praperty
Committedby UsingViolenceAgainstThings orPersans." DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 245
"1 '.(Officialitvof the nenal action.) The oenal action is nublic and. when
ihr pri;;itc dcm<;ndfor iunishment ((quercia'~.ihr reques; by ihe Minirter
of Ju\ticc ('richie,ia') i)r the pri\îte pctititin ('istajare nor neccssary.
ithc ÿctioni is siarted bv ihe Ollice of ihc I>i\trict Aitornc\ In con$euiiencc
of a report (.rapporto3j (made by the Police or by other'public ~fficials),
medical ('referto'),private information ('dununcia')or of anyother informa-
tion of the crime.
2.tDut) to report in gcneral.) The Oiliiidls and the oiher iiienihcrr ~f the
Judi~iar).Police niust makc a report oi:iny crime oiuh~ch the! h~\e in an?
\ia\,knoulcd~c :xccnt ior ihorc crlines for uhich punishnieni ai bc inllicrcd
oniy upon prTvatedemand ('querela')of the ofended person.
The other public officials and those persons who are appointed to carry
out a public service, who, in exercising their functions or service or as a
consequence of their funcrions or service, have knowledge of a crime, are
obliged to make a report on it provided it is not a crimefor which punishment
can be inAicted(only) upon demand of the ofended private person.
The report mus1 be filed, without delay, to the office of the tlistrict
Attornev or Io the 'Pretore'.
The report summarizes the fact and al1circurnstances which may be of
interest for the criminal proceedings; gives information concerning al1the
evidence collectcd and, when nossible, contains the erso on aalta rerardinr
the person who is indicated as being the author oi'the crime, the>erson
oKended by the crime and the witness of any element suit~ble for the
identification of samc."
Despite their obligations under the law, ltalian officials,instead of taking the
measures required by ltalian law and removing the workers, seized the plant by
the Mayor's illegal requisition order. The ELSl officerswere denied access to the
books and records of the Corporation. Prospective buyers could not view the
plant, its equipment and inventory. The acts and omission of the governmental
Officiaisforeclosed the possibility of any saleof the ELSl assets and of an orderly
liquidation.
The FNC Treaty also afords protection to the claimants in this connection.
In pertinent part. il provides:
"The dwellings,warehouses, factories, shops, and other places of business,
and al1 nremises thercto aoocrtainine. of the nationüls. cor~oratioiis and
associati'onsof either ~igh'kontracting Party, located i'nthétcrritories of
the other High Contracting Pirty, shall not be subject to unlawful eiitry or
molestation '"
C. Failure oJ Pr<:/ecri'rontprlyro Quashrhe Reyuisirion
In the circumstances. the failure of the Prefect immediately to act upon the
ELSl aooeal was contrarv to ltalian and international law. In order to avuid the
dama& done to the clai&ants by virtue of the requisition of the ELSl assets by
the Govcrnment of Italy, the Prefect should have taken immediatc action on the
appeal. This appeal was not acted upon within a fewhours. days. weeks or even
months. Over a year and a half elapsed before a decision was rendcred. In the
No. 1399of 19October1930.whichliillsunderthe followingheüdingn:d b"Book1.l Cieneral
Provisions.Title1.TheAciionr.ThcPenalAction."
FNC Treaty. Art.III.pÿr;l2: Ari.V. para. 3interim,ELSl had heen destroyed, forced into bankruptcy, and its property values
decimated. This is a perfect example of the maxim:
"Justice delayed isjustice denied."
International jurisprudence is replete with cases which recognizethe validity
of this axiom'
As a prelude to the foregoing, the claimants were threatened with such a delay
and with the irreparahle consequences. The Hon. Carollo recognized that irrepa-
rable damage would befall the claimants if the requisition was not lifted. He
stated orally and in writing that he deemed it his "duty, in the situation as it has
developed, to provide Rayrheon Company withsome fundamental elements of
iudement so that the irrenorable can he avoided"'. With reference to the anoeal
khzh should have been'decided without delay in view of the critical na& of
ELSI's position, the Hon. Carollo stated in his written memorandum to the
President of ELSI:
"(2) The Banks which have outstanding credits for approximately 16
billion lire,cannot and will no1 accept any settlement even al the cost of
dragging the Company into litigation on an international level. 1 mean to
refer to Raytheon and not to ELSl because the distinction between ELSl
and Ravtheon is not found to be admissible since anv and al1financine was
grinte,l'to CLSIh:i\c<lon the moral guardntcr. oi ~;i);hc<>n.irhosr.c\cc;ii\c,
h3b.cüIua)i ncgi~tialedraid 1in.iticiii~.
(31,\n\i\.i\. IIis knoun in Itnl\ thal one wn cni~~rcethe clxini, dirr.:tl\
against ~aytheon because it has interest and revenues in Our country al&
outside ELSI.
It is obvious that every attempt will he made (even or the cosr of long
Iirigarion)to obtain from Raytheon what is owed by ELSI.
(4) In the event that the plant shall he kept closed, waiting for Italian
huyers who will never materialize, rhe requisilionshall be mainrained al leasr
unril rhe courts niIl have resolvedrhe case. Monrhsshallgo by3:"Emphasis
supplied.)
These threats of delay in connection with the illegal requisition, the fact they
were carried out by the failure of the Prefect to rule for over one and one-half
years, the forced hankruptcy of ELSl and the dragging of the claimants into
international litination bv the novernment-owned and controlled banks violates
customary interiational iaw and the provisions of Article V, paragraph 1,of the
FNC Treaty, which provides:
"The nationals of each High Contracting Party shall receive, within the
territories of theother High Contracting Party, the most constant protection
and security for their pe&ons and property,and shall enjoy in this respect
the full protection and security required by international law."
' For a wealthof citations.sec Freeman,Denial ol'Jusiicr. Chapter X - Unreasonable
hdr rnîounicreJ in Ihc[,uuici.~l,pri>;erdingru~luriiridhlc~bri~:ls\Lr J<.I.i~rnpi!iR~ i
reluul Io do )u~IL;c" l'hc Ilar\.irJ Drail Kcrcir.'hoi) Kc,p~n~ihilii! .,iSt~ic, in il):
pirtincnip.ir+iArIl.lr. 9pru\iJr.> ''Dcrtial lJu~iicr.rriii~uhcn ihcreis :XIInuarr:~iiir.d
Jcla\ ''
'Éxhibit111-12.
' Id. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 247
The fact that al1similar other requisitions of property under the 1865ltalian
statute had been promptly quashed by llalian authorities violates Article V,
paragraph 3, of the FNC Treaty, which affords 'theclaimants protection from
such discriminatory conduct as follows:
"3. The nationals. coroorations and associations of either Hieh Con-
ir:lctlngI'drt)shdl uiihin ilic ir.rrii<>rir.osrcitherkligh(:ontr;iciing Pdrt)
rccci%r.pr<Ilc:tioii :iiid wcurii) liiih rcrpei10 lhc n13llr~ri~n~nler;1liJ ln
(iÿr.irr.iiihi I .?n~biihiir\riislr.. uniin i~iiii~li.cith Ihr.liririli:aId\\.
and regulations, no lessthan the &oiecrion'and security ii.hk:his or may
hereafrerbe accorded IO the narionals.corporationsand associations [isuch
otherHigh ContracringParty and no lessthan that which is or may hereafter
be accorded to the nationals. coroorations and associations of an\. third
country. Moreover,in al1marterskelatingIo the taking of privatelionned
enterprisesinto public on,nerslripand the placing of such.enrerprisesunder
publiccoritrol.enterprises inahichnutionals.corporations una dssociations of
either Hivh ContracrineParti' havea substantiulinreresrshallbe accorded.
wilhin thë territories of the Gher High Contracting Party, treatmvt no les;
favorable than that which is ormayhereafirrbeaccordedtosimifarenterpri~e.~
in h hi chutionals.corDorarionslind associationsof'suchother ~iah-Con-
tracring Party havea ubstantial inrerrst, and no 'lessfavorable than that
which is or may hereafter be accorded to similar enterprises in which nation-
al~,corporations and associations of any third country have a substantial
interest." (Emphasis supp1ied.j
Accordingly, protection isaforded to Raytheon and Machlett, hy both custom-
ary and conventional international law. It is clear with respect to the latter that
this protection extends to Machlett and Raytheon who, as shareholders, had a
"substantial interest" in ELSI, their wholly owned ltalian subsidiary, as con-
templated by the Treaty provision quoted immediately above.
Failure of the Prefect promptly to quash the illegal requisition violated the
abovc-rnenlioned Treaty provisions as well as customary international Iaw. It
damdged the claimants for which the Government of ltaly should compensate
the Government of the United States.
D. Failurefo AchieveAccessta Markets andAdi~rintageo sf MezzogiornoLaw
During its existence, ELSI sought but did not receive, market pdrity with
publicly owned and controlled electronics enterprises in connection with the
supplying of goods and servicesfor use by ltalian governnient-controlled corpora-
tions. Failing to achieve such parity, it then sought to associate ilself with
government-controlled corporations in order to obtain a share of such markets.
ELSl also sought, without success, the advantages accorded by ltalian law to
firms in Southern Italy. Access to such markets and the benefits of such laws are
assured by the FNC Treaty.
E. Inrerferencew'irhELSl's Righi Io FreelyDisposeof Real and Persona1
Property
Article VI1 of the FNC assures the claimants the rights to freely dispose of
their real and personal property within the territory of Italy. The acts and
omissions of the Government of ltaly prevented them from disposing of their
interests in ELSl's real and personal property. In fact, the entire ohject of the
requisition and suhsequent actions of the governmental officiaiswas to interfere248 ELETTRONICA SICULA
with the disposal of the ELSI assets in accordance with the planned orderly
liquidation. The interference is set forth in detail in the statement of the claim.
The President of Sicilymade clear the intent that such interference would oersist.
blocking sale of the assets to anyone in order to assure that they would'not bé
removed from Palermo.
Here, again, is a clear Treaty violation for which the Government of ltaly is
liable.
IV. Responsibilityof the Governmentof ltaly for the Acts and Omissionsof Its
Officiais
Acts and omissions of officialswithin the actual or apparent scope of their
officialcapacities are attributable to their government. The acts and omissions
of the President of the Sicilian Region, the Mayor of Palermo, the Prefect of
Palermo and others which were described inPart 1 of this claim. are directlv
attributahle to the Government of Italy. As a result, the ~overnment of ltaly <s
directly responsihle for such acts and omissions, and the damage which resulted
from them.
The rule regarding attribution of acts and omissions of government officialsto
the government is generally accepted as customary international law. There can
he no doubt "that a State is responsible for the acts of ils rulers, whether they
helong to the legislative, executive,or judicial department of the government, so
far as the acts are done in their officialcapacity"'
"The organs of the State acting within their competence may commit
internationally unlawful acts therehy resulting in the responsihility of the
State . . .The only check which is necessary inthis connection is the one
concernina the possibility that the organ acted outside ils comoetence. When
il has heei ascërtained-that an actron falls within the competence of the
organ, responsihility for such an action is imputed IO the State2."
Inrer alia,the acts and omissions of the judiciary3, of administrative officials4
and of officials ofmunicipal and subordinate units5 are imputed to the State.
The American Law lnstitute has stated the rules as to attribution as follows:
"Section 169. GeneralRuleas 10Attribution
Conduct of any organ or other agency of a state, or of any official,
employee, or other individual agent of the state or of such agency, that
causes injury to an alien, is attributable to the state within the meaning of
section 164(1) if it is within the actual or apparent authority, or within the
scope of the functions, of such agency or individual agent.
Commenr:
(a) State agency.in general. The term 'agency' as used in this Section
includes the head of state and any legislative, executive,administrative or
judicial organ, or other authority of the state.
' Salvador CommercialCompany (El Triunfo), XV Reports of InrernurionolArbirral
Aw,ards477 (1902).
Monaco, Manualedi Diriiro ImernazionokPubblico, Turin, 1970,p. 556.
'IId, pp. 557-558.
' Id. pp. 560-562: seealso Monaco, Manualedi Dirirlo Inrern<izionaleublico,Turin.
1960, pp.560-562. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 249
(h) Commercial enterprise. The term 'agency' as used in this Section
includes anv commercial enter~rise owned bv a state unless. under the law
of the staté, such enterprise
a separate ]égalentity to which the state
does not accord sovereign immunity of a foreign state in the courts of other
states . . .
. . Individual oeeni. The term 'individual aeen-' as used in this section
includcs ans ~tEci31employcc. memher of the armed lorccc, ur othel indivi-
dual eniployed hy or authori/ed to dct on hchalroi'thc ~tatc or 3ny ag-nc).~
of the siate. . .
Section 170. Conduct of Local Authorities
If conduct of an agency or agent of a political unit that is included in a
state causes injury ta an alien, such conduct is attributable to the state to
the same extent as conduct of an agency or agent of the state, suhject to the
special rule stated in Section 193(3)as to a contract of a political subdivision
of a state.
Commenfs :
(a) Federalsiare. Conduct of local authorities is attributahle to the central
government ofa state without regard Io the natureof the state's conslitution.
Although component units of a federal state have certain attributes of
sovereignty for domestic purposes, and may, as in the case of the United
States be known as 'state', theyare not treated as separate states under
international law . ..'"
To the same effect is the resolution adopted hy the Third Committee of the
Hague Codification Conference in 1930, whichprovides
"Article 8 (1). International responsibility is incurred by a State if damage
is sustained by a foreigner as a result of acts or omissions of its officials,
acting within the limits of their authority, when such acts or ornissions
contravene the international obligations of the State."
It is clear from the ample authority, of which the above passages are only
examples, that the acts and omissions of the President of Sicily,the Mayor and
the Prefect of Palemo are imputed to the Government of Italy hoth by the
general rule and the rule covering acts of officialsof subdivisions of the State.
Moreover, the Regional President, the Mayor of Palermo, and the Prcfect are
not jus1local officials,but are officialsofthe National Government as well.When
the President of the Sicilian Region threatened the catastrophe which befell
ELSI'sAmerican shareholden, his own words rnake it clear that he was speaking
not only for the Region, but for the Central Government. When the Mayor of
Palermo issued the requisition decree, he was then acting in his capacity as a
National Officer. Likewise, when the Prefect delayed in ruling on the legality of
the requisition, he was also acting as an agent of the National Government.
When ELSl's employees unlawfully occupied ELSl's plant, no government
officialwhatsoever moved to expel them and enforce the existing lawsand treaty
obligations prohibiting such occupation. This omission to act on thepart of those
chargeahle under ltalian law with enforcing this law also is directly attributable
to the Government of Italy.
Although if is clear that they were acting as Central Government officials,
whether the Regional President, the Mayor and Prefect wereacting in their local
or national capacities is actually of no consequence. In al1cases. the acts or the
' Restatement. Second F,oreignRelations Law ofthe UnitedStates (1965).250 ELETTRONICA SICULA
failure to act of these officialsare attributahle to the Government of Italy. These
officials were unquestionahly acting, or failing to perform acts within "their
officialcapacity"', their "actual or apparent authority"', and "the limits of their
authority'".
V. Standing of the Governmentof the United States
The Government of the United States has standing to present this claim on
hehalf of the American corporations, Raytheon Company and the Machlett
Laboratories, Incorporated.
A. CorporareNufionalsof ihe UniredSrares
Froni the date of injury to the present date, Raytheon and Machlett con-
tinuously have heen corporate nationals of the United States under any test
recognized hy international law.
1. SiégeSocial
Raytheon and Machlett are United States corporations under the siègesocial
test of nationality. It holds that a corporation is a national of the state where
the centre of ils activities is found. The centres of Raytheon's and Machlett's
activities are in Lexington, Massachusetts, and Stamford, Connecticut, respec-
tively. At these sites they hold their board meetings, have corporate officesand
their principal places of business, and direct their manufacturing and sales activi-
lies. There are no other locations, particularly locations outside the United States,
which could be considered as the siègesocial of these two companies.
2. GenuineLink
Raytheon and Machlett are hoth strongly and genuinely linked to the United
States hy virtue of their stock ownership. All of the stock of Machlett is owned
hy Raytheon and a large majority of Raytheon's stock is and has heen owned
from the date of the injury on which this claim is hased to the present date hy
United States citizens as is shown in the accompanying Statement of Claim.
Accordingly, they are United Statescorporations under the "genuine link" test4.
3. Sirusof lncorporuiion
As shown in the Statement of Claim, both Raytheon and Machlett were
incorporated under the laws of the territory of the United States. Delaware and
Connecticut, respeclively.Theyare, and have heenat al1times from their incorpo-
ration to the present date, corporations in good standing under the laws of such
States. The FNC Treaty provides in Article II, paragraph 2:
"~or~orations and associations created or organized under the applicable
laws and regulations within the territories of either High Contracting Party
and shall be deemed to be corporations and associations of such High
Contracting Party and shall have their judicial status recognized within the
' Salvador Commercial Company, XV Reports of Internorionul ArbitrAwnrds 477
(190Restatement.Secand,ForeignRelations Law OC the UnitedStates(1965).
Article8(1).Resolutionofthe ThirdCommittceofthe Hague CodificationConference
. . .. . . .
Norebohm case (Liechienstein v. Guatemala) April 1955,I.C.J. Reports 1955 DOCUMENTS ATTACHEV TO THE COUNTER-MEMORIAL 251
territories of the other High Contracting Party whether or not they have a
permanent establishment, branch or agency therein."
In viewof Raytheon's and Machlett's unassailable genuine links to the United
States, the provisions of Article XXIV, paragraph 5, of the FNC Treaty' are not
applicable. Third country nationals do not have any direct or indirect controlling
interest in either of the claimants. Accordingly, Raytheon and Machlett are
United States corporations under the situs of incorporation test.
4. Conclusion
Under any test recognized by international law, the nationality of Raytheon
and Machlett is irrefutably American.
B. Standing roReprcscntShareholders
The G,>rernmctit 01' the United States. iilicler rulej oi intern.iii,~n.ilIduii
cniitled t<icspou\c the claini oi 11, nation~l\. K.i!theoii and M:i:hleti. 4s ,teck-
hulJcr>oiilie lt.ili.:ornor3iion. El SI. Ihc rule <>iintcrnation.illarr.un hihich
such entitlement is based: is expressed in the decisions of international tribunals,
in treaties, in the practice of the Governments of Italy, the United States, and
many other countries, and in the writings of international legal scholars.
1. Resumé of PerlinenrFoils
The following is a brief resume of the facts which huttress the standing of the
United States to represent the ELSl shareholders:
(i) Raytheon and Machlett are American national corporations under any
iheor) rc&igiii/cd hl intr~rndtt~nallau
(11l'ogether the) oun one hiintlred percent oCthe ELSl itirck
~IIIt.I.SI \ician 1t.ili;inL<jrpi>rïti<;ind ltdl) i the reip,>ndcnt St.itc in ihi,
claim.
(iv) Diplomatic representation of the ELSI stockholders by any State vther
than the United States is not possible.
(v) ELSI is defunct. In view of the diminished asset value (caused by the acts
and omissions on which this claim is based), the Curator in bankruptcy represents
the creditors of ELSI, not ELSI, and nor ELSl's shareholders.
(vi) In viewof ELSl's defunct siatus, the shareholders emergeas the real parties
in interest with respect to (i) their interests in ELSI, (ii) their stockholders' rights
(as distinct from their interests) which were taken from (hem bv the ticts and
omissions of the ltalian Governkent, and (iii) the protection afloided Io United
States nationals through customary international law and treaty provisions.
2. The Pracrice of theGovernments of Ituly and the UniredSlates
Aeain. the Governments of ltalv and the United Stateseniov a similar avvroach
to the esbousal of stockholder clatms. Their positions are based upon the kéalities.
Both Governments recognize thnt damage Io a corporation whose shares are
largely held by foreigners gives rise to real damage to the shareholder and
' "EachHighContractingParty reservetherighltodenyanyoftherightsandprivileges
accordedby thisTreaty to anycorporation or associationcreatcdor organizedunderthe
lawsand regulaiions oftheotherHighConIractingPartyin theownership or directionof
which nûtionalsof anythird country or countrieshavedirectly orindirecilyaci>ntrolling
interest." DOCUMENTS ATTACHIID TO THE COUNTER-MEMORIAL 253
for reasons of losses and damages to his interests in the firm of E. Cerruti
and Company are proper claitns for international adjudicationL."
Itxly continucd iu press for man) yrarr after the auxrd for complete mdnetar!
rcstituiiun for Cerriiti. including protection l'orhiiii from Iitigiitionwhich resulicd
ironi cci7urc<ifthe propcrty iiithc Colonihi.in iirm
(2) Other ltalian Cases
The Guvernment of ltalv firmlv reaffirmed its oosition in the Canevaro case
bcfore the Pernianent Cou;i of lnternaii<,nsl ~ust;cc. ,i;iting ihat II had a righi
1,)proteLi "ltali3n n3tion:ils \!ho 3re nicmbcrs oi a ioreign juridical pers or^"^ Ii
uar. in ~ddition. ü\.erted th.11"Thc lt3li~nSt.iie h~d .iridlit Io nrotcci the Italiün
members of the firm, even with regard to rights which are merciy denvative from
the juridical person", and that "even if the rights of the firm, a juridical person,
are distinct from those of the shareholders, it exercises such rights in retility in
the interests of the latterm3.
(b) United States Practice
(1) The DelagociBay Railroad Case
In this case, the Government of Portugal took, without paying due compensa-
tion, the railroad property of a Portuguese corporation, and cancelled its conces-
sion to operate it. The shares of the Portuguese corporation were owned hy an
English company whose shares in turn were owned hy one MacMurdo, an
American national. Eneland (on behalf of the cor~oration) and the United States
(on heh;rllol'its ri:ition;tlsh:i;eholdcr~ ~nier\cncdhiploniiii;.illy. Porlug;il :igrccd
10 arhiiration wiih ihrce jiiri%is\clr.~lcdb! the Preridciit of the S\\h <'onfcdcr~-
lion On 2%h )larch IYO(i ihc Tribuniil hrld ior the cl~imant Go\crnnicnts4.
This case has~ ~en~recoen-zed bv e,v-rnments and international leeal stu-ents
as a precedent for the rule that a government is entitled to espouse a clüim on
behalf of its stockholders in a foreign corporation.
(2) The El Triunfo Case
~he~El Triunfo ~om-~nv (under a concession contract obtained in 1894from
the C;~\crnmcnt if FI ~:il\ii&r~ dc$.-IiipeJand o~cr~tedthe p,irt 3f El Iiiunio
Thr. h:ire ni.ili>rii,oi SUIoiiir I.l)OlJshare, di %i<ickiierc os ncJ h?ün Anicric~n
company, and 35 shares were owned by other American nationals. In 1898,
several Salvadorian directors usurped the powers of the company's Anierican
president and directors, and filed a petition in bankruptcy. The local courts
refused to grant the plea of the American investors to reinstate the Iiiwfully
elected officers of the comoan. an. to auash the bankruotcv oroc.edi... The
'1;iking" rcsiiltcd iriim the h:inkruptc) anJ the i~thcrd~tion, ,Bithe rcspcrndeni
Go\ernmcni. In rcpl) tcithe deni;ind <)ithe United Statc,s for ;irhitrrti<in. LI
Sal\;idor clüinicd t1i;iihc ~.dsciniol\eil ilne <ifthcir curpi>r.iii<ini3nd ,hould hc
'II Moore. InreriiarionalArbirralionrpp.2117.2121;seealsa De Visscher,"Protection
diplomatiquedes actionnairesdes saciétes". Revue <ledroir inirrnariunolel de Iégi.~laiion
compurb, 1934,pp. 630-631.
Breck.La .senienceorbilrale doni /'of/uire/a Conrvoro,p.40.
inrernarionnelr de Ie~girlorccimparér,q1934,p. 632.onnairesdes sociétes" ,evue de droir
VolumeVI Moore, Di~eirof lnlernalionolLaw, p.649.254 ELETTRONICA SICULA
settled entirely in their courts. The United States prevailed, using the Delagoa
Bay Railroad case as a precedent in its position that States have rights under
international law to espouse claims of their national stockholders in foreign
corporations. The arbitrators found in hvor of the United States with respect to
espausal of stockholder claims'.
Specifically,the award states:
"We have not discussed the question of the right of the United States
under international law to make reclamation for these shareholders in the
El Triunfo Company, a domestic corporation of Salvador, for rhe reason
that thequesrionof suchright isfilly seriledbj' the conclusionsreached inthe
frequently cited and well-understoodDelagoa Baj~ Railroad Arbitrarion?."
(Emphasis added.)
(3) The Rudenand Compan.~ Case
Ruden, an American national, was a partner in a Peruvian finn, which, under
the law of Peru, was a legal entity. The Mixed Claims Commission, established
by treaty hetween the United States and Peru on 4 December 1868 found that
Ruden'sclaim should he allowed for his interest in the firm resulting from damage
to the firm's property.
Lapradelle and Politis, in theirRecueildes Arbitrages Internationaux, Volume
II,page 592, Paris, 1932,make the following comment on the Ruden case, stating
that the question was:
"Whether one should consider in a complete ahstract manner the national-
itv of the association. or whether one should consider in a concrete way the
nationalitv of the members of the association. In thc first case. ~uden. an
~mericai memher of a Peruvian Company, should no1 be able to ciaim
anything or obtain anything from Peru. However, in allowing Ruden's claim
as-an American member in a Peruvian association. the nrhiier thus reiects
the absrractconcepi of the personality of the associationto look hehind;t to
the realpersons of the association."(Translation; emphasis added.)
De Visscher, reaching the same conclusion, states as follows:
"The Commission recognized the Peruvian nationality of the association;
nevertheless, il accorded an indemnity to an American national. Ruden,
based on his erso on ailnterest in the associatioThe onlv eïolunarion of the
emphasis added.)3
(4) The Shc(/eldrCase
Shufeldt, an American national, had an interest in a Guatemalan partnership
association which suffered losses due to unlawful acts of Guatemala. Under the
arbitration which ensued, Guatemala claimed that under its law the association
"has corporate existence", and that the United States "has not locussrandi in
order to present any claims of whatever naturen4. The award upheld the position
'VI Moore, Digesi O/ InlernotionuLOI<,,pp.649, 650; US ForeignRrlorions1902,
pp. US9-ForeignR~loiions1902,p. 873.
' Charlesde Visscher,"Protectiondiplomatiquedes actionnairedes sociétés"Revu?de
droirinrernorionoelde législoiicomparée.1934, p.628.
USDepartment of StateArbirrorionSerie s.o.3, pp. 630. 431-435, 821-831. DOCUMENTS ATTACHI'D TO THE COUNTER-MEMORIAL 255
of the United States, and entirely rejected the defenses raisedby Guatemala. In
this connection, the award stated:
". . .it makes no difierence . . .whether any partnership was in existence,
as it is not the rights of the partnership that are in questionburthepersonul
inrerestof Shufeldtin rheparri~ership" .Emphasis added.)
". . .The Guatemalan Government was trying to do what it could not do
in the eyes of international law. Inrernationallaiv will noi be boiind by
municipalInn. or hy an)' rhingbu! narural,justice, andi~,illlook behindrhe
legalpersonro the rra/ inreresrinvolved." (Emphasis added.)'
(5) Consistency of the United States Position to Date
The United States has consistently adhered to the rule that a State has standing
to represent its nationals who have a substantial shareholdcr interest in a foreign
corporation. Published evidenceof such adherence as recent as 1965 isfound in
the US Department of State Memorandum of Law submitted in connection with
its claims on behalf of the US-Mexican Imperia1 Development Company. In
pertinent part, this memorandum States:
". .. the Government of the IJnited States has the right under principles of
international law to intervene or espouse a claim on behalf of nationals of
the United States who own a substantial interest in a corporation organized
under the laws of. . [a foreign country]'".
3. Pracriceof OrherSrares
Manv other States have relied uoon the rule that thev have the standing. to -
repriseAt stockholders.
Successful representation of diplomatic claims hy governments whose citizens
own substantial stockholder interest in corporations which suffered damage al
the hands of another government has many precedents. Foreign relations docu-
ments are replete with exaniples.
(a) Mexican Eagle Oil Company
The British Government expressed its right to present such a claim in a note
sent to the Mexican Government in 1938in connection with damage done.to the
Mexican Eagle Oil Company.
"His Majesty'sGovernment arc no1invervcning on behalf of the Mexican
Eagle Company, but on behalf of the very large majority of shareholders
who are of British nationality.
They are perfectly well aware of the Mexican nationality of the Mexican
Eagle Company itselfin the sense that il is incorporated under Mexican law,
and in no way seek Io deny tliis.
But, the fact remains that the majority of shareholders who are the ultimate
sufferers from the action of the Mexican Government are British, and the
undertaking in question is essentially a British interest.
For this reason alone, His Majesty's Government have the right, which
cannot he affected by anything in the Mexican Constitution, to protest
against action which they regard as unjustificd . ..'"
' Id., p. 875.
Whiteman. Digestof Inrernoiiono Lloi<,,Vo8, pp.1272.1273.
' Id.,p. 1273.256 ELETTRONICA SICULA
The British note pointed out in this connection that:
"If the doctrine were admitted that a Government can first make the
operation of foreign interests in its territories depend upon their incorpora-
tion under local law. and then o le adsuch incornoration as the iustification
for rcjcciing forcign diplomûiic inier\,enii<iitisclc'irih~i ihc means uould
nc\cr be uaniing u,hercb) forcign Goi.crnmcnts could hr pre\r.ntcd from
exercisine.their undoubted rieht under international law to ~rotect the com-
mercial iiterests of their natknals abroad'."
The Government of Mexico agreed with the British Government to make
payment for the enpropriated property of the oil company2.
(b) The Ziat Ben Kiran Case
One of the claims submitted by Great Britain under its agreement with Spain
for damage incurred in the Spanish Zone of Morocco was on behalf of a British
member of a partnership which was a legal entity under Spanish law. Arbiter
Huber, Judge of the Permanent Court of International Justice, held that Spanish
objections hased upon the Spanish nationality of the firm were inadmissible. In
spite of thefact that undermanyjurisdictions partnerships have a legalpenonality
apart from their members, he held that:
"The jurisprudence of international trihunals recognizes the possibility of
distinguishing, for the purposes of international arhitration, between the
component parts of an association on the one side and the association itself
on the other. lnternational law, which in this matter is governed mainly hy
considerations of eau. .. has no1 so far established anv formal test for
idmiiling or rciuring diplornatic protcciion UTnsiion~l inicrc.1.: hdund up
uith intcrcii \c,icJ in anoiher naiionülii). Ii\neccssar) io clainine whcihcr
ihç mrson dn \\hose hch~lfthe cbini 1shrouaht i-ru.ird isdircalv üKccicd
by the damage . . ""
De Visscher. Judee of the Permanent Court of lnternational Justic and of the
International courtof lustice, in hisarticle on DiplomaticProtectionof Sharehold-
ersin Corporations , akes the following observation as to this decision:
"The award rendered by Max Huber, former President of the Permanent
Court of International Justice with regard to the British reclamation in the
Soanish Zone of Morocco . . .underlines verv well the diFe~e~ ~ ~ ~ ~en
the viewpoints of interna1 law, dominated by (he conception of the unity of
the juridical person and the viewpoints of internationallaw whichare deter-
mined by thè considerationsof justice and equity and which commandthe
protectionof thestockholders." (Emphasis added.)4
(c) The Caseof theForestsof Central Rhodopia
Greece espoused the claim against Bulgaria on hehalf of several of its nationals
who were shareholders in a Bulgarian corporation. The question before the
internotionoel de législaricomparé DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 257
arbitrator was whether Greece could espouse the claim in spite of the fact that
the corporation was in existence and that non-Greek nationals were also share-
holders of the company. This question is not present in the case of ELSI whose
shareholders al1are American nationals. Nevertheless, the arbitrator found for
the Greek Government, stating:
"According to the minutes of the meeting of the Company . . there were
eight interested parties, namely, besides the five persons whose rights the
Greek Government invokes in this case, the two Bulgarians . . .and the
Turk . . Admitting that it has no1 been proved that any of them withdrew
from the company . . the Arbitrator can only presume that there were at
that time the eight persons interested in the company. .. It may bepresumed
. . .that their shares were euual. It follows that the three claimants whose
intereststhe Greek Governmenits competentto representin thepresentcase
hold in the campan,'a fnancial interestrorr~spondingta 2601640 of its os-
setsL." (Emphasis added.)
In this decision, the arbitrator clearly looked hehind the corporate veil to the
real parties in interest. In this regard, the decision is in line with the preçedents.
4. Agreemrnlsof StatesRecognizingStockholderCluims
It is common practice for States to recognize the validity of paying coinpensa-
tion for the interests of stockholders even when the aareement is drawn UP
subsequent to the taking of the corporate property. Oft& such agreements are
entered into~effecting Settlements with stockholders when their corporation is
nationalized'.
It is significant that these agreements are al1entered in10 subsequent to the
time the damage arose, and accordingly are expository of the practice of States
in their recognition of customary international law.
The Treaty of Versailles of 1919 provides for payment 10 shareholders by
providing in Article 297 (e) of the Annex relating to Germany:
"The nationals of Allied and Associated Powers shall he entitled to com-
pen,aiion in rchpccioi'daniagc or inlur) inflictcd upon thsir propcrty. riphi,
or inicrc\t.. iiisluding an). L.snipanyor iissoci;iiion in uhich ihq arc Inlcr-
c,icrl.11Germdn icrrit,>rs ss itcxislcd on I\U~U,I 1. 1<)11." Similarly, the ltalian Treaty of Peace of 1947provides in Part VII, Section 1,
Article 78:
"United Nations nationals who hold, directly or indirectly, ownership
inierests in corporations or associations which are no1 United Nations na-
tional~ within the meaning of paragraph 9 (a) of this Article, but which
have sufiered a loss by reason of injury or damage to property in Italy, shall
receivecompensation in accordance with sub-paragraph (aJ above."
5. Opinionsof InternarionalLegal Scholars
International legdl scholars and publicists have for many years recognized the
reality and the equity of the right of a State under international law to protect
stockholder inierests of its nationals in foreign corporations.
A profound study of whether stockholders in the position of the claimants
may be protected diplomatically by their governments is made by Charles de
Visscher inhis article. "De laprorecriondiplornarique desocrionnaires d'unesociéré
conrreI'Erar sousla legislarionduquelcerresociéré s'es!consrituée .n Revuede
droirinrernarionaler de législaiioncomparée. 1934,pp. 624 el seq.
The position of Judge de Visscher is clear and concise. After an exhaustive
examination of diplornatic practice, arbitral jurisprudence, the treaty provisions
and the prevailing doctrine he states:
"Mv conclusions will be short. lmoerious considerations of iustice. for a
long timc~lrcdd) rccoànizc~ihj diplornati; p~iciicc;~ndthe arhitr.11jiirispru-
dcncccuniirmcd b) xn CSJLI an2l)sis oiihe truc role i)l'ihcjuridicdl pcrsiindl-
itv and OCihc iixtion;ilii\ ~ifci~roor:iiionsunJcr inicrnïtiunal Iaw lcad IOihc
recognition of the right.of diplornatic protection for a State in favour of ils
nationals who own a majority (or a substantial part) of the stocks of a
foreign corporation, when the measures taken of which the corporation is a
victim, emanate [rom the very State under the laws of which the corporation
is constituied . . ."
The Swedish scholar Halvar Sundberg expresses the sdme opinion in his work
on international law "folkriri", 2nd edition, 1951.As to nationality, he states,
inreralia:
"Difierent orincioles mav be aoolied in decidine the nationalitv , >iuridical
persons . . fhe d&eiopmént es;écially in the fizd of jus1compensation for
damages incurred, has been away from any formal criteria towards giving
more and more consideration to the realities behind the coroorate veil.Thus
already in the Alsop Claim . . .the Chilean defense was oLerruled that the
claims of the corporation (incorporated in Chile) could no1 be the subject
of an international arbitration . .. Tliusis ir the naiionaliryof thepersons
\<,hootin rheconrrollinginreresrsin rhecorporaiionii'hichNIrhelasrinsrance
decidero ii,harcounrryihe corporarionbelongs . ..As the stockholders are
the persons who in the very last instance decide, it is consequently the
nationality of the stockholders that decide the nationality even of the cor-
poration." (Emphasis added.) (Pp. 151-152.)
Particularly wiih regard to the ELSl fact situation, the logic of the analysis of
Professor Baggesel forth below is inescapable.
"The shareholders, it would seem, are in a difieren1position [thdn Bond-
holders]. As component parts of the Corporation ihey have an actual share
in ils assets even though during the existence of the Corporation their DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 259
possibility of enforcing rights based on this share independently of the
corporation is limited by municipal law applicable for the corporation. If
the value of their share in the actual surplus assets of the corporaiion has
been diminishcd by damage inflicted on its properiy. the damagc thereby
causcd to the sharcholder seems to be so intimately and directly connected
with the damage inflicted on the property of the corporation that it should
reasonably bc considered Io constitutc sufficieni basis for intcrvcntion . . .
The conclusion oueht thcn to be that if thc shareholder has suffercd damaee
b) lhi acl c<)niiiiilicdb) lhc L~reigiiSi.itc ~nd ihia aci c<>nsiiiJtcs CIhre~ih
oi ~nlcrnaiional 13s. lhcre ii.a~cordinp 10 the internati,>nal ruli n~cnii,~ned
aho\.e. sufiiciciit pr<)undfor ;IIiitrer\intiun hv rhc Srarc uh,)\c cuhiwi the
sharcholder is' ."-
German and Swiss international law publicisis have expressed the same views.
See, for instance, vonBur in Einr hrrerrrntionule Rec/rt~.~~~PNigkIe lrt,rinfisJuhr-
büclrer (1903). Vol.45, pp. 161et seq., pp. 192-195.
Another German ~ublicisi Mosler has recentlv also exorcssed the view ihat the
property interests in'the corporation are decisi& with réspectto the question of
diplornatic protection:
"If l/lej, helongto nuturulpersotisw8hourc <rliens,rlrenrheir Strrtemuy
interveneon iheir heliul/, regardless of thc Iaw under which the corporation
as such has been constituted'."
These vicwsare fully shared by recent Swiss publicists. (See, in this connection,
Binrlsrhedler,Ver,srouilirlzung.~-Mussna/rnie undEnrschüdigungspflrcn lufch Volk-
errechr, pp. 50-52. Zurich, 1950.)
Similarly the well-known Swiss jurist, Puul Cuggenlreinr in his Lehrbuchdes
V6lkerrechrs so asseris (Vol. 11,1948ed., pp. 291-292).
John Basset Moore. in an opinion wriiten in 1920, cxpressed his \,iews as
follows :
"The fundamenial right of the beneficial owncrs is recognized and pro-
tected in interiiational law as well as in municipal Iaw.
This fact has becn srrikinglye.remplifiedin recenrgeursin internutionul
cusesin iihich if iiSossougkl Io interposerhe corlJorure<,nrilj,as u bar 10
inrerventioriby a government for the protection of beneficial interests of iis
citizcns which wcre sacrificed or injured by unjusl administrative or judicial
acts.
It is superliuous to remark that no one denies that ihere is such a ihing
as a corporaiion. or that, whether it be called a 'legal entity', a 'legal
personality' or what not, itis regarded as possessing, by virtue of ils attach-
ment Io somc place, in a certain sense 'nationality' . . Bu1ir by no nleuns
folloivsrliurrlrcpnrrners or shureholders ltuvelos!eitlierrlieirheneficiuloivner-
shipo/tlreprop~,r~~ o'rtireriglt10 beprorecredinsucho~t,t~ership' .E'mphasis
added.)
As to the legal consequences of these views Borchard asscrts:
Referenceto Exhauslionof LocalRemediesand RighisCaused ofShareholders".wXXXlVrtiAJILr
16?el seq.
' Morlcr. Wirrrcho~flrkon:~~.s.rio~i~ceirdrrunxrn der Stourrhohrirp,. 44,Stuttgart,
1948.
' Moore. ColleocdPoprrr. Vol.V. p.268. "Practice consequently pennits itself to consider the stockholders as the
real interested parties and to determine the right to reparation of damages
suffered hy a corporation according to the nationality of the stockholders
who indirectly are the persons injured by the act '."(Translation.)
Charles CheneyHyde clearlvexoresseshimselfto the same eiïect in his Inrerna-
rro~ru1 l .u~(2nd cd.; With rep.ir,l io ilic righi <>I'.Igd\crnmeni ICIinicrvcnc on
behalf uf national inierests IIIa ioreign parinership. e\cn ii [hi, iorciyn pjrincr-
ship. ac<<~rJing 10 the l;l\oi thc I.ind. cdn,iiiuiss 3 jur1Jic:iienlii!, hc si~ic,:
"The fact that an American citizenenters into a partnership with foreigners
whose business is established in a foreign State . . .does not affect his right
or that of the United States acting on his behalf to regard his individual
interest in the firm as essentially American property, entitled to the same
protection as any other such property similarly located. The opinions of
arbitrators aDoearto sanction this view. Even whenthe nartnershin accordine~~~~~~~~~o
to the law ifthe country where it is estahlished is r&arded as a juridical
entity possessing functions similar to those of a corporation, the United
States does not hesitate to espouse the cause of indhidual members who
may be American citizens when circumstances necessitating interposition
arise2."
After an analysis of several of the relcvant Arbitrations and Claims Conven-
tions, Hyde reaches the following conclusions:
"The terms of the foregoing as well as numerous other claims conventions
testify to the existenceof a practice acknowledging the propriety of interposi-
tion for cause in hehalf of nationals interested through ownership of stock
or the securities of a corporation created under the laws of a foreign State.
The reasonableness of such action is attributable to the closeness of the
relationship between a State and its nationals whose pecuniary interests in
the foreign corporation are adversely afïectedby conduct of which complaint
is made . . ."
6. ELSI, a DEfuncrCorporarion
The standing of the United States to bring this international claim is further
buttressed by the fact that ELSl is defunct. It was, and if it can be said to exist
at all, is yet entirely helpless to assist itself by reasons of its financial condition,
the requisition of its assets and ils bankruptcy. In March of 1968,the situation
was so serious that Raytheon and Machlett had moved to direct its orderly
liquidation. The requisition of ils assets forced ELSl's bankruptcy, thus com-
pletely and permanently deprived ELSI from taking any measures on its own
hehalf. As a consequence, its property and al1of its aKairs were in the hands of
the Mayor of Palermo and the Curator in bankruptcy.
International legal precedents have long recognized the logic of espousal by
the State whose stockholdcr nationals emerge as the real parties in intercst when
the corporation has ceased to function. Professor Wortley, in pointing up the
significanceof the DelagoaBay R~oi/roridcase in this connection, states:
'Th? Ku.lcns C'.ise.de-idcd h! ihe Ciiiicd Si3icr-l'cruii:<nCl.iirus C'uuri
t,i lhh8. 13ihe !,,!iel #.riKrd'ihc tIi,iin~iidrih:t\iccn :iliriiand 11siii~.nihr.r,.
thi~ugh I>r \lcr$)n Jonc> hx. ~ncix,~icdih.11lhc tir>[ ~iiiport~tni.irh~ir;il
Annuaire <Ir1'ln.rtirude droit internutionol1931.Vol.1. p.308
Vol. II. pp.901-902. DOCUMENTS ATTACHED TO THE COUNTER-MEMOR~AL 261
decision recognizing the right of shareholders to have representations made
on their behalf was the Delagoa Bay Railway Company Case. decided in
1899. In that case, il was alleged that as the Company was 'practically
defunct', a daim on behall of shareholders could lx made. This method
appears to k normal diplomatic procedure now'."
Similarly, a British note to Romania with regard to the seizure of the Astra
Romana Company stated:
"The Britishmajority of beiieficial shareholdersand His Majesty's Govern-
ment therefore regard Astra Romana as beinginasrareofforcible dissolution,
and those rhareholders havetherefore informed the foreign stafserving with
Astra Romana of this situation, and we are advising them to repatriate
themselves.His Majesty's Government reserve al1right to intervene on behalf
of the majority beneficial shareholders, ii'homusrlienceforwardbe regarded
as being eniioii,edwirh the powers and righrsJormerlj~endowed bi. Asira
Romana'." (Emphasis added.)
By requisitioninp ELSl's assetswithout taking any responsibility for ils liabili-
ties, the Government of ltaly forced ELSl into bankruptcy. ELSI had been
informed by governmental officiaithat the imposition of-the requisitiori would
continue indefinitely3. (The requisition remained for II years before king held
illegal.) In order for ELSl to remain solvent al this critical juncture, il had to
have complete freedom to deal with ils assetsin ils best interests and in the hest
interests of ils creditors. ELSl had substantial obligations which had fallen due.
Demand for payment had heen made. Under such circumstances, with no way
ta take care of its liabilities and past due obligations, with its assetstied up
indefinitely hy the Government's illegal requisition, ELSl faced a long indefinite
period in which it would not be able to meet its obligations. For this same
indefinite period (or permanently), ELSl's asselsand businesswould be handled
hv others. Manv of the assetswould immediatelv decline in value ifnot handled
crt .ccorhingl!. tl.SI not onl) mas unabli in mect dclinqucnt ohlig,!tinn.
in thc immcJi:iic Ciiture. but therc u.si a suh.;tanti~l qur.\tiiin, undcr the circum-
stances, whether it would ever regain control over assets which would have
~no~e-.value to satisfv its oblieLtions. The ltalian law (as does the law of most
couniries) leaici no dllcrn;itii,etribankruptcy in such a situaiion. Failinp trililc
3 i<>luniar?pciiiion in hÿnkrupic\ under iuch ciriunistanses i,a criminal iiiirnsc
' Wortley. E.xpropriorionin Publie lnlernurionoLai? 144(1959).
' 7inte.r.12March 1948.
Exhibit 111-12.
Law on Bankruptcy - Royal Decree No. 267 of 16March 1942.
CHAPTER 1
CRIMES COMMIlTED BY THE BANKRUPT PERSON
'Art. 217.'Bancarattaremplice'.The entrepreneuw r ha. autsidethe caseprovided
Torby theprecedingarticles: . . .
(4) Hüs aggravatedhis own insolvencyby not hling valunfdry petition for his
bankruptcyor by other grave fault,
1s punishedby imprisonmentlrorn sixrnonthsto two ycarsin theeventis declared
bankru~t. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 263
share in the corporation's ventures not only through dividends. but also in the
value of the corporate assets. Particularly when the latter would be worth more
in liquidation lhan the value of the stock, an orderly liquidation is one of the
shareholders' most cherished rights.Although the shareholders had laid elaborate
plans and had taken steps to have these plans carried to fruition, the ELSl
shareholders were denied this most valuable right by actions of ltalianofficiais.
Such actions, inrer <iliu,included the illegal requisitioning of the ELSl assets
which indeed blocked the orderly liquidation and plunged ELSl into bankruptcy,
thereby causing serious deterioration of the asset values and embarrassing the
stockholders in the internaiional marketplace.
Although generally applicable to corporations in Italy and the United States,
as well as the rest of the civilized -,orid. the above principles have particular
relevance io the ELSl situation. The ELSl stock was owned by only two US
cor~orations which were international leaders in the same electronics business in
whkb ELSl was engoged. Their ability to take decisiveand successfulliquidation
was assured. Dissolution of a corporation whose stock ownershir, was widely
defused mieht rcouire an enorrnoiis effort io concert sto~kho~der action. -u~ the
prospects Of ELSI 'Sccess were high. The stockholders no1 only were united
but thev knew the product lines. could continue su~p.. .~v-lued customers a(/
invrim;and could gel the best prices for product lines because of their intricate
knowledgc of their value, and the assisiance in operating them which they could
furnish purchasers.
In addition. the creditors of ELSl have sued the stockholders, as opposed Io
ELSl itself, in an attempt to collect ELSI's debts. All of these suits (which are
described in dctail in Part 1 of this claim) have resulted from the fact that the
stockholders weredeprived oftheir direct right of an orderly liquidation in which
the ELSl assets would have been sold in a manner which would have realized
their actual value, making possible amicable settlements with these creditors.
Irrespective of the merits of these suits, the stockholders. and not the defunct
corporation or the Curator in bankruptcy, must put forth the efiort and expend
the funds to defend agoinst them.
That the right of an orderly liquidation of ifs subsidiary ELSl was taken from
Raytheon and Machlett cannot be denied. At the lime of the requisition, steps
had been taken to liquidate ELSl in an orderly fashion. Liquidation w;is to be
conducted by experienced personnel of the stockholders' choosing. The taking of
the Drooertv which was to be sold in the liouidation obliterated this imoortant
direct &hl: The obliteration of this right 'was an infringement of thé direct
stockholder ri~htsof theclaimants. The Government of the United States accord-
ingly has standing to present a claim basid upon the infringernent of sucli rights.
8. Sranding o/ the Unite</Srates Based upon Coni,o~tional1,irerriarionaLl a~v-
US-lralian Tceat.sProvisions
The FNC Treaty protects the interests of stockholders as well as their direct
rights and, accordingly,aiïords the United States standing to present a diplomatic
claim based upon such stockholder interest.
There can be no doubt about the plain meaning of the Treaty of Friendship,
Commerce and Navigation between Italy and the United States in this regard.
The first sentence of Article III of the Treaty assures the corporations of each
country the right to organize and participate in corporations of ihe othercountry.
It specificallyprovides for the right to purchase, own and sel1shares of stock in
corporations of the other country. Article V, paragraph 2. prohibits the taking by either party of property of the
nationals of the other party without due process of law and without prompt
payment of jus1 and efiective compensation; and paragraph 1 of the Protocol
Statesthat ihis provision "shall extend to inreresrshelddirecrly or indirecrly".
The las1 senience of paragraph 3. Article V. rrantinr most favored nation
irîatmcni to ihc naiioniis sn~s~~r~oriiiionsoicachcounti undîr thejurisdiriion
of the oiher "in al1 maiters rclaiing Io ihe iaking 3i pri\,atcl) ouned cntcrpriscs
into r,ubla ownerçhir, and ihe placin~ of such snt~rpris~~undcr ~ublic control"
-ranis oroieclion to "enterorises in which the natio~als. .orn.~at~ ~s and asso~ ~ ~
lions ofeithcr tligh Contraciing Psriy hii\e a ,ukru,tri<il ,nre~r<~ir" I. lYhl the
Iwo Go\crnmcnii supplemenicd thcir Trr.iiy on I:riend.hip. Commcrcc and
Navigationfor the staied purr,ose of "aivina added encourarement to investments
of one country in useful undertakings-in théother country". This supplementary
Agreement further States that the parties are "cognizant of the contribution
which may be made towards this end by amplification of the principles of
e~uitablc treatment setforth in the Treatv ...".In Article 1of this Su..lementarv
~~rccrncnt ihe pariics iigrce nui to suhjesi n.ltioilais tir ~.urporation\ of cithér
pdrt) "t<) arbitr:ir)or di<rriniinstor) mcawres siihin ihc territcirie\ of the oiher
Hirh Contnictinr Part, resulting v~rlisul~rl) in: id, prtventiiig Ihsir elreciiic
control and manieetnent of enteÏoiises which thev havëbeen oermitted to estab-
lish or acquire therein; or. (h) impairhg their oiher legally a'quired rirhrs and
inreresrsin such enterprises or in the investments which they have made, whether
in the form of funds (loans. sharesor otherwise) . .."'.
Attempts tu distinguish between "rights" and "interests" are at best legalistic
and are virtually meaningless when used in connection with subsidiaries. The
fallacy of such attempts is recognized by the protection afiorded both rights and
interests (which arise from ownership ofshares of stock) under the FNC Treaty.
9. Conclusion
ELSl is incorporated under the laws ofltaly, and the acts and omissions which
-ve rise to this claim are those of the Government of Italv. The unassailable
logic ol'iillowing ihc stoskholdcri' St.iie Io pursuc 3 diplomiiiic cliiim againsi the
rcspondent uhcn the latter ir ihc State of incorporation \irtually ,peaki for itself.
Moreoicr. al1of ihe ELSl stock is held h) two ,\meriçan companics Only une
claimant government could result from stock ownership. But foi the esPousalby
the United States there could be no representation on the international plane in
connection with the taking of the ELSl assets whicb in actuality were totally
owned by foreign investors.
Accordinelv. it is submitted that the United States hasstandine to reoresent
the US ~orpi;rations. Ra)ihron and Machlrit. and io prc\cnt ihiskiim in their
hhali as ;ircsult of their ouncrrhip of ihç ELSl slock.
VI. Exhausionof Local Remedies
IiIS gcnerall) rccognizcd ihdt loc~l remerlie, niuit k exh;iustr.d heli~rca cl~im
may he fornially espouscd under priiiciplci oi international Ixu Such prin~iplc
1\3r ~uih~ritiil~~e.~e~r.resscdin the In,tiluie ul' Intcrndlion~l Lau on IX Aiiril
1956as follows:
' AgreementSupplernentingthe Treaty of Friendship.Commerceand Navigation of
2 February1948:enteredinto force2 March 1961.12UST 131.404UNTS 326.Preamble
andArticle 1. "lt is apparent in this case that an appeal to the courts for relief from the
bankruptcy would have been in vain after the acts of the executive had
destroyed the franchise, and that such a proceeding would have been a vain
thine isthe sufficientanswer to the areument based uoon this lawof Salvador.
fhat w&ld have profited these iispoiled ~merican citizens if they had
successfully appealed to the courts for the setting aside of the bankruplcy
proceedings, aïter the concession was destroyed by the closing of the b1t
of El Triunfo and the grant of the franchise to strangers?'"
Accordingly, although the requirement for a claimant to exhaust his local
remedies before seeking diplomatic relief is firmly established in international
law, the exception which excusessuch a claimant from pursuing remedies where
it is futile to expect any effectiverelief is equally well established.
This is not to say that the litigation in ltaly involving ELSl has al1 heen
concluded. The contrary is true.
(ij The ELSl bankruptcy and related proceedings haveno1 been concluded.
(iij The Curator has sued the Government of ltaly to recover part of the
damage to ELSI which resulted from the illegal requisition.
(iii) The fivebank suits againt Raytheon to collect ELSl's unguaranteed debts
are stillr en di-ne.
In none ol'ihr.outsianding pro~.ccding\ 1, ipojsihlï ior R.i!iheon ind M~chlcit
10 r:<o\cr ;in) compcns~tion uh~h rcsulicd irm the ;icts :ind orn1\5ionsui ihï
Government of ltaly on which this claim is hased.
It is not and was never possible, for example, for Raytheon and Machlett to
sue the Government of ltaly or any of the officiais who were acting in their
official capacities for the requisition of the ELSl assets. ELSl look the only
effectivemeasure which was availahle. It appealed immediately from the Mayor's
requisition decree. The Prefect under whose jurisdiction it fell did not rule for
one and one-hall years. When the Prefect did not rule favorably on that appeal
immediately, the whole chain of events which ledto Raytheon's and Machlett's
irreparable damage was set in motion. The management and control of their
enterprise was wrested from their hands and they were helpless under Italian law.
They had no remedy of a stockholder suit against the Government of ltaly to
seek relief from their loss of their valuahle direct rieht as stockholders to lace
their suhsidiary into orderlyliquidation. ~evertheles; the rights of the stockhold-
ers are preserved and protected by customary international law and by the
provisions of the FNC Treaty.
The claimants have no local remedies to exhaust in connection with the facts
on which this claim isbased. The outstanding legalproceedings, with the exception
of the bank suits, do not involve the claimants as parties, and, with the same
exception, will have no effect on this claim.
Althoueu the f~ ~ that the reauisition was ille~a~ ~ ~ ~ Italian law helos
buttress this international cla&&e claim dependson international law whiih
establishes the standard of conduct against which the acts and omissions of the
respondent must he measured.
Even if the Curator in the ELSl bankruptcy is successfulin every endeavor he
has undertaken to realize the value of ELSl's assets, he would still not have
sufficient funds to pay the claimants any amount sought under this diplomatic
claim. The o,ef~ ~ ~ creditors mav receivesome ~re~t-~~~~~~nts and that in turn
might affect the amounts of~thë bank suits against ~a~theon. Since the United
States is not requesting a specifiedamount as a result of the hank suits pending
' VI Moore, Digest qfIniernoliona1 Law,pp. 649, 650;USForeignRelaiionr 859-873. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 267
their resolution, the eKect of neithcr the bank suits nor the Curaior's suit will
affect the amount being claimed al the present lime. The outcome of the bank-
ruptcy for the samc reason will not affect the amount of this claim since itis now
clear that the damage inflicted on ELSl and the degradation of the value of the
ELSl assets brought about by the acts and omissions of the Government of ltaly
on which this claim is based will result in no payment to the claimants by the
Curator under the bankruptcy proceeding.
In this case ELSl and the claimants promptly and effectivclyexhüusted every
remedy which was availablc to them and, as attested by the accompinying
opinionsof independent ltalian legal experts Avv.Giuseppe Bisconti and Profes-
sor Antonio La Pergola, there rcmain no effective local remedies to pursue.
Pursuing further any local remediesavailable in ltaly would be futile and accord-
ingly no1 required by international law.
Accordingly, Raytheon and Machlett have exhausted every meaningful legal
remedy available to them in ltaly.
A. Compensoriun
The general standard rclating to the amount of damages that are recoverable
as a result of a breach of an express treaty violation is to bc found in tCl~orzow
Fuctor cyase. In the decision on this case, the Court made the distinction between
an ordinary, lawful taking of property, which would have only the payment of
cash compensation for direct losses, and a wrongful taking which violated an
express treaty obligation. The latter requires restitution in kind, or if 1h;it was
impossible, payment of a sum that would eflectivelyplace the complainant in the
situation in which he was before the illcgal act was committed.
"The essential principlecontained in the actual notion ofan illegal act -
a principle which seems to be established by international practice and in
particular by decisions of arbitral tribunal- is that reparation must, as far
as possible, wipe out al1the consequences of the illegal act and re-establish
the situation which would, in al1probability, have existed if that act had not
been committed. Restitution iiikind. or, if this is no1 possible, payment of
a sum corresponding to the value which a restitution in kind would bear;
the award, if need bc, of damages for loss sustained which would no1 be
covered by restitution in kind or payment in place of it - such are the
principles which should serve to determine the amount of compensation due
for an act contrary to international law'."
The Court notes that if this distinction were ignored ". . .it would be tanta-
mount 10 rendering lawful liquidation and unlawful dispossession indistinguish-
able, in so Faras their financial results are concerned"'.
In ELSl's case, it has been shown previously that the acts of the Government
of ltaly did violate Italian law, cuslomary international law and a number of
specifictreaty provisions. Accordingly, Raytheon and Machlett are entitled to be
placed in the same position in which they were prior to these illegal acts and
omissions. ELSl'ssubsequent bankruptcy. the saleof much ofits former property,
and deterioration in value of the remainder of its former assets have obviously
' Care concernin~ !l>FricIo,?01 Chur:<iw:Judgment of 13 Seplember 1928.SciriesA.
No. 17. PCIJ 47.made ih~simpor,ihle. 'Thur. the only othcr ai.ailable remeJy ir io auïrd such
mone) damages io Rayiheon and hlachleti as u,illaccomplish the same resuli
The amouni of moncv thai uill achieve ihat @u. .sics S7.225.968or 4.516 , 2--
millionlireat the conversion rateof 0.0016.This sum is broken down into various
categories which are described in the sections that follow.
B. Paymentof ELSIJ- CuaranreedLoons
As a result of the Government of Italy's illegalacts which precipitated ELSl's
bankruptcy, ELSl lost the opportunity for orderly liquidation and the benefits
of amicahle settlements with al1 of ils creditors. Thus, existing loans which a
number of Italian banks had made Io ELSl were no1amicably seltled. When the
banks realized that ELSI could not pay these loans, ihey turned to Raytheon as
the guarantor of someof them. Raytheon paid 5,629,481,667lireon theseguaran-
tees. If the Government of Italy had permitted ELSl to proceed with an orderly
liquidation, the proceeds from it would have enabled ELSl 10 have paid the
banks 50 per cent (50%) of the total amounts due on lire 2,815 million on the
guaranteed loans which Raytheon would no1 have had 10 pay. The portion of
this cost which would havebeen paid from the proceedsof the orderly liquidation
is one of the elements of damage to Raytheon which is a direct result of the
unlawful acts of the Government of Italy. To reiterate, the amount of the
claimants' damage in this connection is lire 2,815million.
C. Suici Broughrby ELSIS UnguaranleedCredirors
The illegalacts and omissionsof theGovernment of Iialy also caused Raytheon
to be subject to groundless suits brought against Raytheon and Machlett by five
ltalian hanks. The total amount claimed under these suits is lire 4,431,574,151.
The essenceof these banks' claims is that Raytheon is the only shareholder in
ELSI, and that il is responsible for the unsecured loans which the banks made
io ELSI. Although Raytheon is no1 ELSI's only shareholder, and these claims
are believed IO he legally groundless, il is possible that the ltalian courts may
depart from their estahlished precedents and hold Raytheon liable.
If the Government of ltaly had no1interfered with Raytheon's and Machlett's
management and conirol of ELSI, and had not such interference prevented the
orderly liquidation of ELSI, these suits would have heen entirely avoided. The
banks were willing to settle with ELSI for 30 to 50 per cent of the amounts
claimed in the suits, and this amount would have easily been realizedby them in
an orderly liquidation. Once ELSI's assets were requisitioned and il was forced
in10bankruptcy, there was no loneer anv oossibiliiv of settlement. nor was there
any likelihood ihat the actual valuewouÏd be realizedfrom the ELSIassets. NOW;
as a result, Raytheon is king sued for the total amount of these unsecured debts
aiieiiing.;tirer tr/lu ihc faci lhai nothing can k e.~peclrJ as a diridend IO ihç
general crediiori in ihe biinkruprc) II is nou impos*ihleIo restore Ra,iheon's
setilement opportunities with the hanks, and ~a~theonnow mus1expend ils own
funds to defend itself against these groundless suits.
The total amount of lire 4.431,574,151which these fivebanks mav recover and
~mountsfor Ra)iheon', Jcfcnre of ihe suiir arc no1includedin the sum reprcseni.
ing the amouni uf Ka)iheon's and Machlcii's preseni claim againsi the Govern-
ment of lialv II ISprohahle ihat Rasiheon uill succcedin derrndineuar-inri~thcsc
groundless ;~ils. lithis is the outcoke of the litigation, Raytheon wibe entitled
only io recover from the Government of ltaly the amount it is out of pocket as DOCUMENTS ATTACHED IO THE COUNTER-MEMORIAL 269
a result of its defense of these suits. To the extent, if any, of recovery by the
hanks. Raytheon is entitled to full indemnity.
In order 10 place Raytheon in the same position in which itwould have been
had it not been for the acts and omissions of the Government of Iialy in
connection with ELSI, it is essential that the Government of Italy assuine the
responsibility for such suits which wereinstigated hy its government-ownçd and
controlled banks.
This portion of thedamage is also supported by precedent. In fact, one of the
precedents, the Cerrriticase, may be found in the diplomatic history of the United
States, Italy and Colombia. Cerruti was an Italian national who resided in
Colombia where he engaged, among other things, in a businesspartnership which,
under Colomhian law, was a legal entity. As a result of a revolution, he fçll into
disfavor with the governing circles in Colombia. The Colomhian Government
seized his assets, including the assets of the partnership. Several lengthy arbi-
trations ensued, and the matter was placed before Grover Cleveland, President
of the United States. for a settlement. Amon= otherawards of damaees. Prçsident
Cleveland held the Government of ~o~ombia responsihle for paYment of the
debts of the ~artnershio. The Government of Colombia obiected, statina, amona
other things; that the amount claiined was indefinite, and-therefore beiond the
scope of the arbitrator's jurisdiction. In the heated diplomatic correspondence
which followed. ltalv flatlv disarreed with the Colomhian ~osition. Before final
resolution of the matter, colodia paid a portion of theaward to the ltalian
Government. Private law suits werç brought against Cerruti in Italy attacliing or
ouroortine 10 attach this oortion of tKe award in the hands of the itaiian
~o;ernmcnt. Eventually, ~olornbia assumed responsibility for the suits, and was
successful in settlina with al1of Cerruti's creditors, exceDtfor one who oersisted.
Thematler was finaly settled hy an arbitral commission.in Rome on 6july 1911,
with the arbitrators granting to the Government of ltaly virtually al1 that it
requested, including costs Cerruti had been required to incur as a result of
defending private litigation in Colombia.
The Government of the United States asks no more in this connection than
the Government of ltalv r.ques.ed for its national in the Cerruri case. It is
obviously inequitable to seize the assets of a legal entity without regard to ils
liahilities. When this inequity affects the nationals of another State, the resulting
damage is ohviously a proper element of a diplomatic claim. Accordingly, ac
though no definite amount is included in this claim in respect of the bank suits,
the Government of the United States requests the Government of ltalv to assume
financial responsibility for payment of any judgment which may reiult and for
Raytheon's costs in defending against such suits. The Government of the United
States also reserves the right to reopen this claim at such time as amounts of
such damage become ascertainable.
D. Roylheon'sOpen Accounrs wirh ELSl
Also, as a result of the requisition. Raytheon was not able to recover the
amount of 550.000,000lire representing 50 per cent of certain open accounts it
had with ELSI. If ELSl had ken permitted Io liquidate in an orderly fashion,
Ravtheon would have recovered this amount. Any ho~e of collectina on these
accounts was vitiated by the requisition and subsequent'acts of the ~~vernment.
The forced sale of ELSl's plant, at a diminished price, and the reduction of the
value of the rest of ifsasseIO a fraction of the amount a skilled elecironics firm
could have obtained for them, assured that there would not be enough money10pay Raytheon anything on ihese accounts. Raytheon's damage in connection
with this item, then, is lire 550,000,000.
E. DomageResultiiig fronz the Legul,Accounling,Printing. utid Other E.ïpenses
Inrurred in Cnnnectir>n it,irhThisClaim
It has been long recognized in customary international law thai a complainant
is eniiiled to recover the cosis in preparing his claim.
SinceApril 1968.Raytheon and Machlett have had large out of pockei expenses
in connection with this claim. The claimanis also will continue io incur further
costs until the claim is settled.
Raytheon and Machleit estimate ihat the sum attributable 10 the hundreds of
hours required of accountanis. administrators and attorneys to prepare this claim
is lire 600 million.
Considering the sizeand complexity of the claim and the many issues involved.
the amount asked as reirnbursemenf for costs is reasonable and should be paid
by the Government of Italy.
International Arbitral Tribunals have long recognized thai in circumstances
likc ihose involved in this claim. ;iclaimant should be reimbursed for necessary
costs in protecting his inierests and in cstablishing his claim. The cases discussed
below are typical.
A leading case on cosls is the Sl~ufel~lcase (United But<..s v. Gir<iremolu) in
which the United States Government claimed compensation in respect ofloss of
time of Shufeldt. injury to credit and grave anxiety of mind on account of the
cancellation of the contraci involved. The Arbitrator in his award staied:
"Tiking rillihr. circunir1;incrs inti) ciinsider;ition. ih~i Shufcldt ua> ,uJ.
dcnl) throun oui ~iihu.iness and the iimc and eipcnsr'iniurred in endc.ii<~r-
in- 10corne to a settlement with the Governmeni of Guatemala and then in
tr)ing IO gel thr. IJnitr.J S1;iicrGoicrnineni 10 r'jpou\~.hi. ;:turc. I think II
juit and 1101cxcci\iie Io :illuri S15.0lJli(on tliir hcad " (II Uniicd K.iiion%.
Hi,porl~UI I,zl<~r,,<<~,<A~,roil~ru,I,tiiril1083. I IUI )
In the case of Roberr H. May (Unircd Staresv. Gu~rtrmrrlu) the Arbitrator, in
awarding damages sustained on accouni of the wrongful rescission of a contract
for the management and repair of a railroad. siated:
"It has taken Mr. May iust over two vears to obtain a setilement of his
claim against the Guatemaian Government. He has had io undertakejourncy
upon journey Io bring the maiier before ihe United Siaies Government and
to induce them 10 iservene in his favor: he has had to engage. ai heavy
rates the services of emineni lawyers; whose repuvation would insure a
hearing from overworked officiais .nd whose opinions. based upon the stern
logic of facts, would have weight withthe legal advisers of his Government.
Many of the leading witnesseswere scattered over the face of the world, and
May has had 10 undergo the expenses of reaching ihern. Owing to the
unremitting altention exacted by the prosecution of his claim. he has been
entircly debarred from sceking remunerative work, and his credit, which, on
the showing of this Government. was so excellentas to cause his pay checks
io be receivedas cash by al1his neighbors, is nearly. if no1eniircly suspended
until the decision of the arbiirator be known.
On the foregoing grounds the arbitrator decides: .. .
5.That the Government of Guatemala will pay Mr. Roberi H. May the
sum of $40,000 gold by way of indemnity for expenses incurred. two years' DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 271
lime lost. suspensionof credit, and grave anxiety of mind." (Foreign R<~lurions
of tlle Uriirc<lSr<rtt.s1900.648, 659,673-674.)
In thc El Trnir!r/;~Conipon~.I.rrniredi~sc1 Unirr<l.îrirrr\,.Soli<r<lor,arhiiratcd
undcr :ln :igrccnicni <,l1'1Dcïcnihcr 19tl1 ths Arbitr,itors au,ardcd d3mdgcs for
the destruction of property and the annulment of a concessionand franchise and
the following costs incurred by claimant:
Expensesincurred before intervention by the
United States $ 2,671.31
Attorneys' fees $60,000.00
Other expensesof prosecuting the claim $18,964.77
Total: $81.356.08
(Foreign Re/atioits of tlie United Srutes 1902. 859,862.)
In the Walter Stirirlz case (United Srares v. Cuba) arbitrated pursuant to an
agreement of 2 January 1927, the Arbitraior allowed the expenses claimant
incurred in "defending his rights". The Arbiirator staied:
"However, afier taking into account al1 the testimony and docunientary
evidence.also the o.riod of lime durine-which the claimant basbeendeorived
i~i ihc.useof hir priiprrty. appro\ini.itcltcn );.irs. ..,id the s\pcit,otihich
hs h:is hccn pur in dcfsiiding hi, righi,. the Arhiir~i%>rlin& ihnt. .isii~nipcn-
.aiion ior the \;iluc diths land. oithc buildingcand pcr~on;iIcfiit.iiiiii~~nïd
thcrcin. ;ilro ihe dcpri\aiion of thei1.eof the propcrt) ;ind in consideraiii~n
of hir r.\psn,cindcfcnding hi$rights. hc should receitc in c<iinpletc isttlt~mrnt
S190.000." (Il IJnited Natiiin\. Ri,porr>i>l'Int~~rnurr<i><rl irro.lii<ir</')l 5.
Y18 l
On many occasions arbitral tribunals have allowed claimants' costs without
explanalion. The following casesare typical: Johrl Baldiiirr, Arbitration between
the United Slaies and Mexico, Convention of II April 1839(4 Moore, Interna-
rionrrl Arbitrarions, 3235): Patrick Cootey, Arbitration bctween the United States
and Mexico, Convention of 4 July 1868 (3 Moore, Ir~rernationol Arhitrulions.
2770): The Louisu, Arbitrations between the United Statesand Mexico under the
Convention of II April 1839(4 Moore, Intcrnotir,nal Arhirrations, 4325.)
International iribunals sometimes refuseto allow costs. When they do so, there
appear to be sound reasons for disallowance. For example, in the case of the
S.S. Wimbledon (Fronce v. Cermony) which wasdecided by the Permanent Court
of International Justice in 1923,certain expensesof the cldimant were dis;illowed
on the ground that they were not connected wilh the refusdl of the passageof
the vessel.(1 Hudson, World Courr Reporrs (1934). 180.)
The Orinoco Sreunisltip Compurty case (Unired Srarrs v. Venezuela)is a very
interesting example of ihis type of case.When this casewas arbilrdted under the
Protocol of 1903, Umpire Barge disallowed a claim for counsel fees, stziting in
part :
"But whereas the greater part of the items of the claim had to be dis-
allowed;
And whereas in resDectto those that were allowed il is in no wav oroved
by evidence that they'were presented to and refused by the ~overiinent of
the Republic of the United States of Venezuela, and whereas therefore the
necessity Io incur those fees and further expenses in consequence of an
unlawful act of culpable negligence of the Venezuelan Government is not272 ELETTRONICA SICULA
proved, this item has, of course, to be disallowed." (IX United Nations,
Reportof InrernurionalArbirrul Awards, 180,204.)
However, when the same case was presented to the Permanent Court of
Arbitration al The Hague, pursuant to an agreement of 13 February 1909.the
court allowed counsel fees and expenses of litigation, stating:
"Whereas the claim of 1625,000for counsel fees and expenses of litigation
has been disallowed hv the umuire in conseauence of the reiection of the
greater part of the claims of théUnited ~ta&s of America, and as hy the
present award some of these claims having been admitted, il seems equi-
table to allow part of this sum, which the tribunal fixes ex aequoer bono al
$7,000 . . .(Scott, The Hague Court Reports (1916), 226.)
Thus. it an..ars that the cases in which costs are disallowed actuallv su,oort
the rule that costs are a proper element of damages because the tribunals invaria-
bly point out that the costs have heen disallowed because of some dereliction or
failire on the oart of the claimant. Such elements are not oresent in this claim
and it would iherefore appear that Claimant's costs should be allowed on the
basis of the overwhelming weight of authority in his favor.
A? Inleresr
Simple interest computed at the rate of 5 per cent perannum has been included
in the claim from the date of requisition of the ELSl property to 30 Iune 1971.
Simple interest at the same rate from 30 June 1971to the date the claim ispaid,
when such date has been ascertained, mus1 also be included. lnterest has heen
included because it is an elementary principle of international law that interest
must be paid for the delay in payment of an obligation which has arisen from
the taking of property and that interest should run from the date the property
was taken to the date payment is made. International tribunals have usually
awarded interest al more than 5 percent per annum but 5 percent only is asked
in this claim because that is the rate prescribed by ltalian law, and international
tribunals as a rule award the rate in eiTectal the place where the loss or damage
occurred.
A, poinlcd out in oih:r parir oithic Hricl: intcrnation~l tribunil\ III3lloi\ing
ctimpen%illoiiior intcrniili<)n~lurongs ia~llo\ithe simple prili..iplcihai ilie <>hjcsI
of compensation is to place the injured party in the same position he was in
before the injury. Ttfollows that the injured party is no1put in the same position
unless the compensation includes interest for delay in payment.
The reason for the allowance of interest is very simply stated in Administrative
Decision No. III of the Mixed Claims Commission. United States and Germanv.
That C'ommi~\ion;ill~iwcJinteresi ai 5 pcr ccnt pcr .inrium on sl.iinis ior properi!
i~kcn u.hile the United Si~tes UJ. ;i ncutr~l. 'l'heTre~t! uf V:r,,tillc\ u;is sileni
on inicrc,t ,31s~shcl;iinisanJ ihe Trz~t) of H:rlin. c~i:iblishin>!ihc Commi\,ion.
expressed Germany's obligation in teAs of "compensation"or "reparation".
The Commission stated:
i\ppl)ing the prinsiplcr JnndunccJ in Adiiiini~ir.iti\e Dcci%ion Ski. II :II
DJBC~7-h. the C~mmi~sionIiold ih3t iii 31~lsini*h,t\cJ un pr.iprri! hkcn
and no1 returned 10 the nrivate owner the measure of damaeeFwhich will
ordin~r~l) be spplied is ihc rcsionnblc m3rkct ialuc .ICthe properi! -4,di
ihc lime Jnù plax oi taking in ihc c<~n~liti~i~ nniihi.'liilihen iiss. ii ih:id
such niarkei \slue. iinoi. iheri the intrinsic i~luc si'tlie riropcrii3r,>i.u:h
lime and place. But as compensation was not made at ihe'time of taking, The Hague International Court of Arbitration in the case of Russio v. Turkey
discussed interest at length. The court said, in part:
"The tribunal isof the ooinion that al1interest-damaees are alwavs re. .a-
lion. compensaiion for culp:ibiliiy. Froni ihis puini or iicu al1 inirreri-
daniages ;irecompensaiory. uhaic\cr name ihey ma) be given l.eg~Iinteresi
aIlou.cd ;icrcdiior for a suni of monev froni the d~ic <ifIhc dcmand in due
Formof law is the l-eal c~mwr~~tion-for the de~i~~ ~nc. OFa,tardv de~~~r
exactly as inierest-damages or interest allowed in case of an act of violence,
ofa quasi-act of violenceor the nonfulfilment of an obligation are compensa-
tion for the iniurv suiïered bv thecreditor. the monev vaiueof the resoonsibil-
. .
iiy of ihe dclinquïnt debtor Exaggcr~iion of the.ccon\cqucnce, ol citil-IJU
di~iincliunsin re,ponsibiIii) 1sihc more in~dmi\.ihle bcc.iusein much rcccnt
leaislation there appears a tendencv to lessenor abolish the mitiraiion which
the Roman law Gd its derivativei admitted in the mattcr of resnonsibilitv
as to money debts. It is ceriain. indeed, that al1culpability, whatever may
be ils oriain, is finally valued in money and transformed in10 obligation io
.av..it a71ends. or can end. in the iast analvsis. in a monev debt. The
tribunal, therefore, cannot possibly perceive essential di~erences between
various responsibilities. Identical in their origin - culpability - they are
the snme iri their consequences - reparation ;n money.
The tribunal is. thcrcfore, of the opinion that the general principle of the
responsibility of Statesimplies a special responsibility in the matter of delay
in the payment ofmoney debt, unlessthe existenceof a contrary international
custom is oroven. . . .The tribunal. for the reasons indicated above. is of
ihr opinion. on the contrar). ihat ihere is no rciiion why the greai :inalug)
u.hirhe~isis beiuccn thedilTcrcii1forms olre\ponsibilii) rhuuld noi be i;iken
into account; this analogy appears particularly close between interest called
mororonmand interest called conioensatorv.The analoev aooears to be com-
plete beiween the allowance of interest fiom a certaindate Lpon valuing the
responsibility in money, and the allowance of interest on the principal
determined bv agreement and remainine unoaid bv a delinauent debtor. The
only diferenfe iFthat, in one case, the Fnter&tis allowed by the judge, since
the debt was no1exigible,and in the other case, the amount of the debi was
determined by agreement and the interest becomes exigibleautomatically in
case of demand in due form of law." (7 American Journol of lnvrnarional
Lac, 178.)
Iniernalion~l irihun;ils h;i\e consisirnily awdrded inicreji froni ihc daic of ihc
lors or injur) to ihc daic of ihc auard This irc<>n,i\icniuiih thr principlc ih;it
.-ornpcn~liiian. IO "m;ike the iniurcJ pdrt) wholc". inu\i include intercsi. Ohvi-
ously then, interest musi run frim the date of injury. In the earliest arbitration
in which the United States was a pariy (1794),the United States-British Commis-
sion awarded interest al 6 per cent per annum from the date of damage to the
date of ils awards (1 Moore, Internarional Arbitralions (1898), 339-340, and 4
Moore, Internotional Arbirrorions (1898). 4318-4319). The Mixed Commission
established under the Treaty of 27 October 1795between the United States and
Spain also awarded inlerest ai the rate of 6 percent per annum from the date of
damage (III Whiteman, Domugesin Internotional Law (1943), 1867).
In the Illinois Cenrral Railrood case (United Srores v. Merico), mentioned
above, the question of the allowance of interest was discussed at length by the
Commission established thereunder. In that case, a claim was presented for
%1,807,531.36.including interesi amounting Io $335,331.36 as of 1 April 1925,
together with a proper allowance of interest thereon from 1 April 1925. This DOCUMI:NTS ATTACFIEU TO THE COUNTER-MEMORIAL 275
amount was claimed to be due in payment for 91 locomotive engines sold by the
American Company Io the Governnient Railway Administraiion of the National
Railwavsof Mexico under a wriiten contract. lnkakinean award. on 6 December
1926,theCommission allowed the unpaid principal sumof $1.472.200and iiiterest
on the deferred payments under the contract up to I April 1925.amouniing to
$335,331.36,as well as inierest ai the rate of 6 pcr cent per unnio>ron the sum
$1,472,200 from I April 1925 to the date on which the las1 award should be
rendered by the Commission. It staied:
". . . It is the purpose of the Convention . . . to aRord thc respcctivc
national . . 'just and adequaie compensation for their losses or daniages'.
In Our opinion just compensatory damages in this case would include no1
only the sum due. as staied in the Memorial, under the aforesaid contract,
but compensaiion for the loss of the use of that sum during ü period within
which the payment thereofcoiitinues io be withheld." (IV United
Reports O/ I~iternarionalArbitral Aivards, 134, 136.)
In the Oririoco AspliaIr Conipuni. case (Cermuny v. Venezuela)intcrest was
allowed from the date of loss. Umpire Dufield said, in part:
"ln the absence of any testimony on which any definite appraisal of the
value of the asphalt at the mines can be based, the claimant has not shown
the actual amount of his damage. In the opinion of the umpire a fair, and
perhaps the only, measure of damage is interest on thc amount for which
the oroduct of the mincs would have sold durine the-.criod of stonnaee of
traffic. Perhaps mathematical accuracy might reqiiirc this iniereii be
calculated for the averape lime, but under al1the circumstances of the case
the umpire is or the o5nion thüt it is just to allow interest for ihe enlire
period." (X United Nations, Reporrs of' Internationul Arbitr<rlAirardr, 424,
428.)
In the Shufeldtcase (Uniret1Starc.rv. Gttatemolal. m,n,ioned oreviouslv in this
Memorandum, the tribunal allowed intcrest on the property taken and on pros-
pective profits. The arbitrator siated:
"Interesi is also claimed bv the United States Government. Shufeldt has
bccn dcpri\cd oi the iiscof hi3property - the iiicoineon hi$in\c.;imeni
l'orlu3 !.e.ir, Thi~iiisonie on Iiropcri) I hate asses;ed ai 515.415per ;innom
aiid I ihink hc is eniiilcd in JLSII;C 10 c<mpctli7tlc>nfor ihc 105sof iu~h ule.
I thcreiorc .iuard :in ;iniiiutit :qu:il io.i\per sent %an.uch tiiconie l'or t\i.ti
\edrb. lhlt ihS4.575 Ill '1Il U111ied N:~li~~iiRs,,,fl<,r#,/l~il~~r~~~tftA ~r#llruI/
Aii,ard.r,1083, 1101.)
As pointed oui above, the United States-German Mixed Claims Comniission
in Administrative Decision No. III allowed interest from the date of loss for
property taken, damaged or destroyed.
From the foregoing it is abundantly clear that ltaly is obligated to pay interest
on this claim from the daic the orow... involved was reauisitionediothe date
the claim is paid.
In the Beckman und Contptiriycase (Germany v. Veneneruela1,903). llmpire
Duffieldin allowing interest for delay in payment said, in part:
'It I,tuu :leïr io nccd drgumcni ihnt iino r.iic uiiniere~t ir igrectl upon
h) ihc p.iriics onl) the legal rdtc lin Veneruclalï,in hc illuued " (X Uniied
hation; H,.pi.rr.(11I,zt<~r#,uri<iAir<hrilrrul :l~irrrd\.4%. 437.1276 ELETTRONICA SICULA
In the Puerto Cabelloand ValenciaRail~i~aiC , omoane case (Grear Brilain v.
Vene:urlu,. Umpire I>lumlc~in auarding iiiieresi ai'ihc '.l3u,iu'lraie" hascd his
dccision on ihr ground ihai Ihc pdrllcj IO ihe coniraci involved knew ihc lauful
raie and were bound by it. Mr. Plumlcy said, in part:
"But bv thelawsof Venezuelainterest on overdueaccountsmav beallowed
ai 3 pcr ccni uhcn ihcre ISno agrccmeiii conccrning inicrcst in the coiiirJci
Ifinietc\ti,to bc aIlo\,cd hcre.11ison ihr ground thdi ihr claimdnt compdn!
has been without the use of certain sums of money of which usethe respon-
deni Government has had a corresoondine benefit. Eauitv would reauire
compensation for such use in orde; to secure a fair andSperfect baiance
beiween the two parties. When the claimant Companysecured the concession
and the guarantyit undoubtedly knew the lawful-rat6of interest in Venezuela
when no rate was prescribed in the contract. If il wcre then unwilling to
content iiself with such lawful rate in case of default or delay of payment,
it should have secured a stipulation for a more favorable rate. That il did
not do this must be taken as suficient oroof that it rested content uuon the
lawful rate. Again, the respondent ~overnment knew its lawful 'rate of
interest at the time ofentering upon suchcontract ofguaranty, and in therein
providing that al1questions;ndispute should k dëtermined by its courts,
where only the lawful rate could be considered and adjudged, it in efect
secured a stipulation that both of the contracting parties were 10 abide by
the lawful rate. . . ." (XIUnited Nations, Reports O/ InternationalArbitral
Aivards. 510, 526-527.)
In iheHetry Green case (UniredSrares v.Meiico). the Commission established
under the Convention of 1I Apnl 1839awarded interesi ai 6 percent per annum
on the principal amount awarded, "that king the legal rate of interest in Florida
at the time of ihe advances" (III Whiteman. DamagesinlnrernarlonalLa~i.. 1978).
The same Commission allowed 6 per cent interest in a case which arose in the
state of Louisiana bccause that was the legal rate in that state (III Whiteman,
Domagesin InreriiarionalLon', 1979).
On the basis of the foregoing cases and many similar cases, ii is seitled in
international law that in order fully to compensate the claimants, inicrest should
be raid from I April 1968, the date of the requisition, to the date the claim is
paid, at the rate of 5 percent per annum, the applicable legal rate in Italy.
Summary of Legal Arguments
1. The principles of customary international law and the applicable Treaty
provisions governconsideration of this claim.
II. The taking of the assets of ELSl (an ltalian corporation whose shares were
owned by the American claimants) wiihout paymeni of compensation therefore,
violaied customary international law and the US-ltalian Treaty of Friendship,
Commerce and Navigation. as supplemented (FNC Treaty)
A. Cusiomary international law prohibits the taking of ihe property of a
loreigner without ihe payment of prompt. adequaie and eflectivecompensation.
as does Article V. paragraph 2, of the FNC Treaty. This rule applies to al1of
the rights and interests held directly or indirectly by the claimants in ELSI,
particularly in viewof paragraph I of the FNC Trcaty Protocol.
B. ArticleI of the FNC Treatv Protocol oroscribes the arbitrarv or discrimina-
tory prcicniion of \meriçdn ~o;~oraiions irom controlling and m3naging entcr-
prises ihc) have hecn pcrmiticd IO esiablish or acquirc in lial). Thc rclzurc of DOCUMINTS ATTACHED TO THE COUXTER-MIMORIAL 277
ELSl's assets prevented the claimants from exercisinganycontrol or management
over ELSl in violation of this Treaty provision.
C. Arbitrary or discriminatory impairment of the claimants' rights, interests,
and investments in ELSl are prohibited by Article I of the FNC Supplement.
The seizure of ELSl's asscts, particularly without the assumption of any responsi-
bility for ELSI's liabilities, impaired the claimants' rights and interests, and al1
of their investments in ELSl to the extent that the Italian Company was forced
into bankruptcy, and the claimants' rights, interests and investments thereiii were
obliterated.
D. Article VI1 of the FNC guarzintees the claimants the right Io acquire and
freelydispose of real and personal property in Italy. Seizureof ELSl's assets and
other measures taken by governmental officiaisclearly violated thistrealy provi-
sion. It was impossible for the claiinants or their ltalian corporation to dispose
of any of ELSl's assets,and even the Curator in ELSl's bankruptcy had had no
choice but to seIlthem IO a government-conirolled corporation.
E. Article VI of the FNC Treaty provides that ELSl's facilities in Italy shall
not be subject Io unlawful entry or molestation. Such facilitieswere seizedby the
Government and occupied by ELSl workers in violation of the Treaty provisions
and ltalian law.
III. Paragraph 2 of the FNC Protocol and Article V of the FNC Supplement
assure the claimants' enterprises in Iialy certain rights and privileges and other
advantages to be enjoyed by industry in the Mezzogiorno. These rights, privileges
and advantages were withheld from ELSI.
IV. The Government of the United States has standing to present this claim
on behalf of ils American corporate nationals as shareholders of ELSI.
A. Under any test recognized by international law (siege. social. genuine link
or situs of incorporation) the claimants are American nationals.
B. The Government of the United States has standing to present this claim on
the basis of the claimanis' shareholder interest in ELSI.
1.Customary international law has long recognized the right of a govern-
ment to present claims in respect of damage to a foreign corporation in
whichits nationals have a substantial interest. Raytheon and Machlett owned
al1 of the ELSl stock. Also, as a result of the acts and omissions of the
Government of ltaly ELSl is dcfunct and bankrupt. and a corporation of
the respondent's nationality, f;ictors which furthcr solidify standing of the
United States to present this claim.
2. The FNC Treaty is clear in a number of ils provisions in giviiig the
l-~it~ ~States standine to ~resent a claim on behalf of its shareliolder
nationals. Paragraph Ïof thé FNC Treaty Protocol. for exemple. provides
protection ofp~ ~ ~ty interests held directly or indirectly. Such a provision,
irom its plain meaning, but more particularly when studied in the perspective
of the use of ils terms in customary international law, clearly covers al1of
the claimants' intcrcsts in ELSI, including its shareholder iniercsts.
\'ThcilainianIr h.iir.c~hiiusisd thcir loial rcmcdicr in Italy. ELSl immcdiatel)
ïppc~leil ihe rcquisiiion of ils property O\er one and one-half ?cars Iai.:r ihc
rcriuisiiion*,a\ held IO hatc bccn illce~l Pronipi oieriurii of ihc requisilion \vas
the only remedy which would havea&rted theclaimants' damage. jhey have no
standing. as ELSI stockholders, Io sue the Government of Italy on the facts
which support the claim.278 ELETTRONICA SICULA
OPINIONS REFERRED TO IN MEMORANDUM OF LAW IN SUPPORT
OF THE CLAlM OF RAYTHEON COMPANY AND THE MACHLETT
LABORATORIES, INCORPORATED AGAlNST THE GOVERNMENT
OF ITALY IN CONNECTION WlTH RAYTHEON-ELSI S.P.A.
[See infra, Reply of the UniredSrares,Anne41s 3 and
THE CLAlM OF RAYTHEON COMPANY AND THE MACHLETT
LABORATORIES, INCORPORATED, AGAlNST THE GOVERNMENT
OF ITALY IN CONNECTION WlTH RAYTHEON-ELSI S.P.A.
Exhibit1-rhrough111-25
1-1.CERTIFICATEINCORPORATI ONRAYTHEOC NOMPANY
[ASAMENDED]
[Nor reproducedj
1-2.RAYTHEOCNERTIFICATEGOODSTANDING
[Nor reproduced]
1-3TO1-31.DOCUMENTAT IFCITIZENSH OPROFFICEROF RAYTHEON
[Nor reproduced]
1-32TO1-39.DOCUMENTAT IFCITIZENSH IFDIRECTOR OF RAYTHEON
[Nor reproduced] DOCUMENTS ATTACHED TO THE COUNTER-.UL'MORIAL 279
[Nor reproduced]
1-41MACHL~ CERTIFICAOTGEOODSTANDING
[Nor reproduced]
1-42 1-46.DOCUMI~NTA OFICITIZENSHIPOFFICE RSMACHLETT
[Nor reproducedl
1-4TO 1-49DOCUMENTAT OOCITIZEPISOFIPIRECTOOF MACHL~TT
[Nor reproduced]
1-51FIRSNATIONA CITYBANK~ONFIRMATIONSOELSISHAREHSELD FOR
RAYTHEOAND FORMACHLETT
[Nor reproduced] 1-52.ELSI'SCONF~RMAT ~OOLYBRAN DF ITSCAPITAL STRUCTUR AND
SHAREHOLVERS
Palermo, 22.1.1968.
Dear Sirs,
After having examined Raytheon-ELSl's officialbooks, we hereby certify and
confirm the following:
1. The total capital of Raytheon-ELSI S.P.A. on 31 December, 1967, was of Lit.
1,500,000,000.
2. On that date the aforesaidcapital wasdivided into 1,500,000shares as follows:
- 750,000ordinary shares of 1,000 lireeach, marked "A".
- 750,000preference shares of 1,000 lireeach, marked "B".
Preference shares marked"B" enjoy pnonty in the distribution of the
assetsof Raytheon-ELSI up to their par value in the event ofapportionment
of such assets to the stockholders. Furthermore they may be converted into
ordinary shares marked "A" upon request of the shareholders.
Machlett Laboratories Inc. appears as the registered owner of 33,750
ordinary shares marked "A"; Raytheon Company appears as the registered
owner of 1,466,250shares. The following isa breakdown of the certificates
registered in the name of Raytheon Company:
Ceriificarenumber Number of shares Par valueofshores
I 200 shares"A -. . ,...
200 shares"A" 200,000
200 shares"A" 200,000
200 shares "A" 200.000
5 200 shares "A" 200:000
6 200 shares"A" 200,000
7 200 shares"A" 200,000
8 200 shares "A 200,000
9 200 shares "A" 200,000
10 200 shares"A" 200.000
II 200 shares "A" 200,000
12 200 shares"A" 200,000
13 200 shares"A" 200.000
14 200 shares"A 200,000
15 463,850 sharesA 463,850,000
17 249,600shares "A 249,600,000
18 750,000shares "'A 750,000,000
3. Certificates 2, 3, 4, 5, 6, 7, 8 and 9 are held as surety for the directorship
of Mr.J.D. Clare (11,Mr. AIdo Profumo (2), Mr. J. J. Stobo (3). Mr. H. L.
Bianchi (4). Mr. 1. A. Scopalliti (5), Mr. C. L. Calosi (6), Mr. F. Ruta (7),
Mr. A. Lodolo D'Oria (8) and Mr. A. Rovelli (9). These certificates are filed
at Raytheon-ELSI, Via Villagresia No. 79, Palermo.
Certificates 10. 11. 12, 13, 14. 15, 17and 18are deposited in the name of
Raytheon Company with Credito Italiano. Palermo.
4. Furthermore, please be informed that Raytheon-ELSI has obtained the pre-
scribed authorization by the Ministry and has successfully accomplished al1
legal formalities. Therefore. the Board of Directors, during the meeting which
is going to be held sometime in February next, will approve the increase of DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 281
the Company capital from Lit. 1,500,000,000 to Lit. 4,ûû0,000,000. The
increase will be made by issuing No. 2,500,000shares, divided as follows:
- 1,250,000ordinary shares of 1.000lire each, m"A:ed
- 1,250,000preference shares of 1,000lire each, marked "B.
Rayiheon Company will purchase the entire stock of shares.
The operation will be carried out by turning the credii of Lit. 2,500,000,000
claimed by Raytheon Company from Raytheon-ELSI into No. 2,500,000shares
of 1,000lireeach.
(SigneilC. Po~izzorm,
(Secretary General).
(SignedJ.B. MAZ~OTTI,
(Administrative and Financial Manager).
11-1.MANU~~CTURI PNDGSALESAGREEMEN BTWEEN RAYTHEON
MaSUFA:A<XUR i\GMPASY W. ALTHAMM.AÏSACHUSFTU TS.AAPIUFARRICA
ITAI.lA\ARAUUR~~~ATA OI~PAKI:CCR)IIUIOLM~ICC;Il.:\OIALI
[Nor reproducedj
11-2.TEXTOFINCEPIIONAGREEMIIN OFT21OCTOBER 1955
/See 1,Memorio1cfllie UniredSILI, nne.xII].- 8- --. < " .O *
.- z .&,.,,OS .~.~2 .:.:
8I " gzgag ""a g 3
m & e& z DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL
283
This Agreement entered into at Waltham. Massachusetts, as of the 2nd day of
January 1960, byand between Raytheon Company. a corporation organized and
existingunder the lawsof the State olDelaware. United Statesof America. having
a principal office at Waltham. Massachuseits, USA (hereinafter called "Ray-
theon"). and SociétéEuropéennede Téléguidage. sociéd téresponsabilitélimitée
au capilal d'un million de nouveaux francs lrançais. organized and existing under
the laws of the Republic of France. having a principal office a1 Paris, France
(hereinafter calledSetel'),
WI~<,reust.e Governments of the Federal Renublic of Germanv. the Kinedom
ol Belgium, the Republic of France, ihe ~e~ublic ol Iialy and he ~in~dom of
the Netherlands (hereinafter called theParticipaiinp Govcrnmenis") have estab-
lished, and the North Atlantic Council has ioted,-approved, and adopted the
establishment ol the Nato Hawk Production Organization, consisting ofa Board
of Directors and the Nato Hawk Manaeemeni Oliice tapent ol the Board of
Directors) as a Naio subsidiary body withFnthe meaning octhe agreement on the
staius ofihe North Atlantic Treaty Organization signed at Ottawa on 20Septem-
ber 1951.to direct and suvervise the Ndto Hawk oroeram: and
. ..authorities, thcn Raytheon agrees, when requested by Setel. io ncgotkite with
Sctel with respcct to the licensing of a suitable firm in a Pariicipating Country
having the aiproval of the ~ato Hawk Production ~rganization loi the
duction of such Common Item in the said country.
(D) If the Board of Directors of the Naio Hawk Production Organization shall
eleciio allow to he given to ElettrcinicaSicula (ELSI) an order, onthe same terms
and conditions as are offeredby Setelto subcontraciors and are accepted hy them
and at reasonable orices in the lieht of the auantities oiicred and for reasonable
deliveryschedules,'tomanufactu;. a quantity of the magnetrons now or hereafter
used inHawk which iswithin the capabilities of ELSI. and thereafter such Organ-
izdtion shall dcsire a second source for such magnetron or magnetrons other chan
Compagnie Généralede Télégraphiesans Fil with which Raytheon already has
licenceagreements with respect to magnetrons, one relating 10technicalassistance
and one 10patents covering magnetrons, Raytheon shall negotiate an agreement
wiih any concern acceptable to Raytheon which is selected by Setel with the
avvroval of the Nato Hawk Production Organization with resvect to technical
asSistanceand patents, making available technical assistance to'such concern to
the same exieni as is provided in paragraph 1.02 and for a patent licence with
respect io the production of such magneiron.
In ihe evcnt thal such source and Raytheon cannot agree as to the terms of
such agreement, Raytheon shall grani to such source, and shall be decmed to
have herebygranted, a patent licencefor the production, maintenance and opera-
lion of Hawk at a royalty rate of 4 per cent based upon the sales price of such
magnetrons deterrnined in accordance with the provisions of paragraph 4.10 (B)
upon salesof such magnetrons for the Nato Hawk Program.
Raytheon warrants that, if ELSl is provided in iimely fashion with test and
ageing equipmentcomparable to that supplied to Raytheon as Government Fur-
nished Equipment for the test and quality control of magnetrons made by Ray-
theon for Hawk. either (1) ELSI shall. ifgiicn iimcly ordcrs ihcrcfor. producc m3pneirons for Hawl
of a qulilii) cqual IO ihosc magneirons r>r<iduccdfor Hawk by Haytheon <)nan
ade~uate delivëw schedule andat a ~ric'not ereater. in the lieht of ihe auantities
ordired and ilic Etagcof production~than ihryi~ priccscharg& ihc üniicd Siatcs
<iu\crnmcnt h) Raytheon for the $Amrmïpnctron and R~ythcon $hall cxcro,c
its best efforts to hring about such production by ELSI, or
(21Ravt,eon shall. if ELSl is in default or threatens ~o ~ ~ ~ ~-fault ~~ ~u~~ ~~ ~ ~
ordeks, assume ELSI'Sobligations, under~lheorders placed therewith and deliver
said magnetrons, at a price which shallbe the lower of lai the ELSl price or (61
al a not greater than the price at the time of such assumption b$ng charged
the United States Government by Raytheon for domestic delivery for the same
magnetron, adjusted for diferences in quantity.
Raytheon shall grani under ils patents, know-how and information to Setel
and101 to the NPCs pr the concern or the concerns selected hy Setel for the
manufacture of the itcms listed in Exhibit A, for the Nato Hawk Program, the
right to make. use and incorporate such items in the Hawk Missile System in the
Partici~atine Countries and to seIl such items as a Dari of the Hawk Missile
s si c hio16 in ihe Pariicipïiing Counines and outridc or such counirics in ihc
iuII cxicni Rayiheon mriydo su uiihoui incurring Iiahility IO oihcrs ihdn IO ihe
subcontracior\ Iisicd in Exhihii A. Furihcrmorr Ravihcon shall iausc thosc of
ils subcontractors listed in Exhibii A, who are selected pursuant to paragraph
1.03 to render assistance with respect Io the items listed in Exhibit A, to grani
under their respective patents, know-how and information to Setel and/or to the
NPCs or the concern or the concerns selected hv Setel for the manufacture of the
items listed in Exhihit A. f.r~the Nato Hawk P~ ~a~. th- rieh~ Io~-ake. us~ and
incorponte such itcnis in ihc Hawk Mi<i\ilcS).;tsm in ihc Pÿriicip~tingCouiiiries
anil IO scll>uchiicnis as 3 part olihc Hawk \lisiilc S,*icni bath in the Particip~t-
ine Countries and outsideof such countrics to the full extent that thc said sub-
contractors mJ) grani such rights \iithoui inrurring liahilii!. IO orhsrs.
The grant or gmnis rcfcrrcd tu abotc in th!s p~rïgr;iph ? 03 ih;ill nol. houcvcr.
extendio Common Items. other than
11-6.RADARANG LITERATURE
[Nor reproduced]
[lrùlia!~tex1 nor repruducedj
IX. IN~RORGANIZATIONAL AGREEMENTOF 5 MAY 1965 ON LAY-OFFSFOR PERSONNEL
CUTBACKS
betwecn the General Confederation of Italian Industries; the Iniersind Trade
Association; the ASAP - Associaiion of Petrochcmical Industries opcrating
with State participation: DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 285
and the General ltalian Labour Union; the ltalian Confederation of Union
Workers; the ltalian Workmen's Union;
hetween the General Confederation of ltalian Industries; the Intersind Trade
Association; the ASAP - Association of Petrochemical Industries operating
with State participation;
and the ClSNAL- ltalian National Confederation of Union Workers;
betwecn the General Confederation of ltalian Industries; the lntersind Trade
Association; the ASAP - Association of Petrochemical Industries operating
with State participation;
and the CISAL- ltalian Autonomous Confederation of Union Workers.
The participating organizations arrive at the formulation of ihis agreement with
the intent to providc for a suitable instrument which, king conducive to co-
operation between the respectiveorganizations and the member industries repre-
sented.would contribute to a neaceablesolution of oossible ditierences in labour
rrl3lionsduc Io In?-uB:. This 1sin con.iidcr~iion ~>f\ituiliionj uhcrc cxçcsj I>cr,on-
ncl uould h~\c 3 nrgaiivc cRcct dn produsiion COSI jcop3rJizing ihc poiiiion of
ihc bu>incscuhilc on the oihcr h-ind the I;i$-olï oi such personnel u,ould crcaic
social problems especially in areasof high unemployment.'
This agreementestablishesaconciliative procedure the scopeofwhich is under-
stood to be aimed ai and limited to the specificobjectives of the agreement proper
and which, should there be lacking rcconcilement, does no1in any way limit the
rights or capabilities of the parties hereto.
Article 1. Corporate management, whenever it secsthe necessityof reducing
the number of workers employed for the purpose of cutting back or converting
the businessor the shop operation, will so advise, the regional labour organiza-
tions. sufficientlv in advance and throueh the ano..nri.te union local. to.oer.~it
implcnicntaiion. u hcrc appli~;ible. of the proccdurc outlincd bclow. IIu,ill indii:ttc
the rcnion~. ihc numbcr oi'workers Io k iiitoltcJ in the I;i!olf2nd the eifcciite
date.
Companies employing more than 100workers, and planning the suspensionof
operations for more than 30 days afecting more than 20 pcr cent of the work
force or evcn 500or more cmployees,will advise the appropriate labour organiza-
tions through the union local concerned, indicating the reasons, nuniher of
workers involved, and expectedduration of the layoti.
Article2. The rcgional labour organizations cdn ask the indusirial association
concerncd, within sevendays of notification of the situation per first paragraph of
theprecedingarticle, to mcet with them for examining the reasonsfor the iritended
personnel curtailincni on the basis of the information provided by the company
concerned and any rcalistic, concrete possibility to avoid thc layotientirelyor in
.art .erhaDs bv iransfers within the comoanv.wit,out. howcver. constituiine a
non-productit~burdcn li>r ihc conIlian)
If wsh a nicciinpii nui rcqucsted uithln sevcnJ;iys. thc aiiiun <:in iaLc plecc
uithout del:iy. If. houcvcr. une of the labour orranilaiions rcqucits ihc niicting.
the latter must behcldwithin the followine five davs.
The prosedure ;u\crcd in ihi\ .igrccmcni muqt bc con\umni:itcd uithin 25iI:i!>
irt~n~ihc dite of~iùtiiir~tion ùithe Ishour org.ini/.itions pcr AriiilcI .ihinc
If the comwanv iustifies ils intended action with a tcchnological conversion or
reorg.inization O; ihc labour organizations unanimously rccognize such a situa-
tion,the deadline givcn in the preccdingparagraph will becxtcndedby two weeks.
The reconciliation procedurebelwecn the union organizations mus1beuncondi-
tionally carried out within the lime-limits specified in this agreement. with the
understanding that the company will suspend any Iayoff action until the saiddeadlines have expired or until it is round by ail concerned thai reaching agree-
ment within the said time-limitsis impossible.
In the meeting mentioned above,-the employers' associalions and the work-
men's unions can avail ihemselves of the assistance of representatives of the
company concerned and, respectively, of the Interna1 Commission or one of its
~.-...~~~~~~~~.-
Both in the case of agreement and in the event ofnon-agreement, the Company,
determinine which workers are to be laid of. will follow these comparative cri-
teria; iechrÏical and productiviiy requirements; seniority; family-care consider-
ations.
Article 3. The procedures according 10 this agreement relate 10 operations
normallv,emolo. , umore ihan ten workcrs. For facilities havine a union Reore-
sentaiive in management. the procedure established in this agreement is limited to
a conciliaiive review between management and the said Rcpresentative. In the
other overaiions wiih uo 10 100 workers. the time-limit for ihe review of the
plsnne~la).of;ir pcr ~riiclc 2obo~r is rcduçcd io ttto rrteks.
Arilclc4. Thç pxiies heretd agrec that uorkeri laid orlior pcrronncl reiluciion
will receive,apa;i [rom the severance pay provided for in collective contracls. a
flacallowance far an initial period of unemploymeni.
This allowance will bepaid out by way of an insurance organization governed
by appropriaie legislation and controlled along guidelines for which the parties
hereto willsubmit specific proposdls to the cognizdnt authorities.
Formal declaration :
The organizaiions of the two parties hereto. prepared io implement the provis-
ions of Article 4 above, hereby declare that ihey do not iniend 10 make any
changes regarding the points so far covered.
Article 5.The layofs eiïected for personnel reduction are indeed motivated by
no other consideraiions, and the workers involved have the right to berehired by
the same company if the latter does any hiring within a year's lime for functions
or specialized jobs previously held by the personnel laid of. In this case the
rehiring willbe made, under observation of objectivecriteria, in the reverse order
of the layoiïs.
Article 6. The stipulations of this agreement do no1apply 10 layofs dueto the
expirationof term contracts. or contracts for specificbuilding construction work.
or for seasonai or irregular jobs.
Article 7. This agreement becomes effectiveon I June 1965and will be valid
until 31 December 1968. to be automaticÿllv extended from vear 10 vear unless
ssncelled by one of ihe pariicipaiing organizsiions si iuo months' n<iticcprior io
the original or the exicnded ç~piraiton dsic
Explanation reArticles 1and 2:
The notifications according to Articles I and 2 are to be given by the regional
industrial association to the . . organizations, on an equal level (union labour
exchange or labour offices),except if the industrial association's territorial limits
of responsibility are different in which case the notifications will be given to the
corresponding labour organizations wherever they are locaied.
Explanation reArticle 6:
In consideration of the oarticular imooriance or freauencv of soecific sinele
jobs In the building indusir) 11 should bc explsined thsi ihc concept oi spr.cilii
juhi in the uid industr) slso cosers graduxl coniplriion of single phxses oi work
which requirc the successiie uiilizaiioii ol'u.orkers oidinércnt qualiiic<iiions. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 287
Statement re Articles2 and 3:
With reference to the provisions of Articles 2 and 3 governing the actiori to be
taken by the company in the different hypothetical cases considered in the para-
graphs of the said Articles, it is to be understood that the notification of layoff
and the time-limit for advance notice in respect of individual workers become
effectiveas from the completion of the procedure outlined in thesaid paragraphs.
Statement re Article 2:
In the hypothetical case where an agreement is reached relativeto the number
of personnel to be laid off, the labour organization may examine the list of the
employeesaffected for the purpose of pointing out individual caseswhere possible
re-examination and substitution of others may he justified on the basis of the
criteria per last paragraph of Article 2. without such re-examination being al-
lowed, however, to delay the action by the company.
Read, confirmed and signed.
COMMONDECLARATIOS
The parties hereto, convinced of the need 10 pursue greater and more efficient
utilization of the work force for the purpose of economic and social development,
and awarc of the imoortance as wcflas the delicate nature of emo. .meni orob-
lems,stress the necessitytojointly examine the circumstances surrounding person-
nel reductions for identifying their causes. for helping ta limit their negative
impact and, by common agreement, to come up with satisfactory solutions accept-
able 10the public authorities.
The parties hereto therefore agree:
(O) to periodically examine, between thcm, the employment situation on a
national level,ingeneral and for the individualectors of industry, for the purpose
of gathering the greatest possible amount of current information and projections
regarding employmentproblems resulting from conjunctural economic situations
and from eeneral technoloeical oroeress:
(b) 10 kg the results-of t6e &ove examinations to the attention of public
authorities either for a possible further analysis or for a decision and action by
the public authorities themselves,and also for an improvement of the instruments
of income support for the workers aiïected by the personnel reductions as wellas
those forjob training.
For the oumose of imolementine ooint /alabove the oarties hereto aeiee that
the examiiation of empÎoyment p;oblems'is'the respons~bilitvof the ~onfedera-
Lionsassisted, in matters pertaining to specificsectors, by the respective national
trade unions in the industriesoncirned..
The objective of such an examination, hesides determination of the nature,
characteristics and problems of employment conditions, is the formulation of
near-term and medium-range working plans.
For the implementation of point (hl above, and for arriving at a co-orilinated
and rational employment policy with efficientcollaboration between government
authorities and professional organizations, the parties hereto entreat the follow-
ing:
Establishment, on a national level,of a suitable ministerial entity for handling
general and specific employment ~roblems and for instituting, on constiltaiion
iith the oartks hereto and with ihe coeniuant local aeen-ies where necessarv.
whatever steps are appropriate;288 ELETTRONICA SICULA
Upgrading of the Compensation Service to permit better classificition of al1
cases, extension of benefitson behalf of workers laid off in personnel cutbacks as
provided for in the respectiveinterorganizational agreement, and improved, faster
handling;
Stepped-up efforts to retrain personnel in the case of reorientation or technical
reoreanization either of an individual comoanv or an entire sector of the industrv.
und& CO-ordinationof the public resouries ;vailable for that purpose on a na:
tional or international level.
11-7.IR1CHART
[Not reproduced]
11.8.BANCO DI SICILIABULLETIN
[Ilalian tex1andEnglishtranslationno1reproduced)
II-8A. PRESS CLIPPING SN IR1TAKEOVER
(1tal;anteit andEnglishtranslationno1reproduced]
[Italian tex1notreproduced]
EXCERPT FROM LEX,PART 1,PAGE 1718
Dccrcc h!. tlic 51inistr) d329.Mrrch 1967(in O~h,.i~C;i,:t,rUgi.171oi'10
Jul) l9671. 011the Kcdiicli6inoi hl~ritimc Shipping R3tca in r\ccord~n~c wilh
Article 15of LegislativeAct No. 717of 26June 1965.
Inconcurrence with the Minister for Soecial State Particioation in (the develoo-
ment of) Southern Italy and with the ~inister of ~inancé,the ~inister for the DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 289
Merchant Marine, in consideration of Article 15of Law No. 717of 26June 1965,
decrees the following:
Article 1. For ocean-freight transportation, belween national ports, of raw
materials and semifinishedgoods consigned directly to industrial facilitiesopera-
tively established and located within the Mezzogiorno (Southern Italy), and in-
tended for direct use by these facilities in their production work, a 5 per cent
reduction applies to al1standard freight rates and tariiïs excludingembaikation,
unloading and insurance charges, as stipulated under the provisions of the
agreements outlined below.
An analogous rate reduction also applies 10the lransportation of merchandise
produced by industrial facilities operatively established and located within (he
ltalian Mezzogiornoand shipped to locations outside the Mezzogiorno.
EXCERPT FROM PROVVEDIMFN LETI ISLATIVPAI,E 1179
Article 15
ReductionofTarifsfr>r Maritime and RuilTransportarion
The rail freight tarifs established in the second paragraph of Article 7 of the
legislative decrec No. 1598 (1) of 14 December 1947 issued by the provisional
government and ratified by lawNo. 1482(2) of 29 December 1948,also apply to
the movement of materials and machinery required for the modernization of
industrial facilities.Analogous benefiisapply 10ihe transportation of raw materi-
als and semifinishedgoods needed in the production process and for industrial
conversions, as wellas for trans~ortine to destinations outside the Mevoeiorno
tini\hcd producis of industrial conipÿn;s loc~tcdwithin the wid territory'
Thr rail freighi rites rïfcrred Io in the Tirs1par3gr;iph al$<!iipplv Io ayriculiur~l
and related ~roducts
nal log oi reductions are permitted for transport~tion by ocean vessels,sche-
duled or otherwise, includingvehicleferries.
EXCERPT FROM PROVVEDIMENTI LEGISLATIVI
Decree by the Ministry dated 29 March 1967(in Ofici01GozetreNo. 172of II
July 1967),on the Reduction of Maritime Shipping Rates in Accordance with
Article 15of LegislativeAct No. 717of 26June 1965.
In concurrence with the Ministerfor SpecialState Participation in (thedevelop-
ment of) the Mezzogiorno(SouthernItaly) and wiih the Minister of Finance. and
in consideration of Article 15of Law No. 717 of 26 June 1965,the Minister for
the Merchant Marine decreesthe following:
Article 1.Ocean freight of merchandise referred to in the second paragraph of
this Article, between national ports and destinations within the territory outlined
in Article 3 of Law No. 546(1) of 10Augusi 19 ..(?) as amended and under the
provisions of Article I of Law No. 717(1)of 26June 1965and subsequent articles,
shall be subiect to a reduction of 5 oer cent on the standard freieht rates and
tariiïs excluàing embarkation, unloading and insurance charges. F8r shipments
handled hy the state-subsidized shipping line such rate reduction applies to the290 ELETTRONLCA S~CULA
standard tarifs of the same; for shipments handled by independent carriers the
rate reduction is governed by the provisions of Articles 5, 6, 7of this decree.
The henefiis according to the preceding paragraph apply to construction and
building materials, machinerv and any other items required for the original con-
structioi. the reconstruction. the conversion. the exnansion and tc moder-
nization of (a) operatively established industiial facilities, (b) any other shop
operation and supportive system within the premisesof the said facilities.
[Italian tex! not reproduccd]
Paragraph 915. LegislativeAct (Decree)No. 40by the Provisional Government,
dated 18 February 1947,on Supply and Job Contracts reserved by Government
Agencies for Industries of the Mezzogiorno. (Published in the Oficial Gazette
No. 51of 3 March 1947.)
Article 1. For a period of 10 years from the effective date of this decree the
agencies ofthe Italian Government are authorized to reserve for industries in the
regions of Lazio, Campania, Basilicata, Calabria, Puglie and Sicily, supply and
job contracts valued at not lessthan one-sixth of the total project amount.
Paragraph 983. LegislativeAct No. 835 of 6 October 1950,on Supply and Job
Contracts reserved by Government Agencies for Industries of the Mezzogiorno
and the Lazio Region, and Definition of the Mezzogiorno (Southern Italy) and
lnsular Italy. (Published in the OflcialGazerte No. 245of 24October 1950.)
Article 1.The agenciesof the Italian Government are requiredto reservesupply
and job contracts referred to in legislativeAct No. 40 (1) of 18February 1947,for
the industries, including small businesses and artisan shops, in the provinces of
Lazio, Abruzzo, Molise, Campania, Lucania, Puglie, Calabria, Sicily, Sardinia
and the Isle of Elba. The same requirement applies to the Administration of the
national railroad system and of the Navy, relative to contracts referred to in
legislativeActs No. 374of 14lune 1945and No. 503(2)of 15November 1946.
Article 16. Reservation of 30 per cent of Supply and Job Contracts by the
Public S~c~or. Notwithstandine . .~nrovisions of Law No. 835 of 6October 1950.
ind exccpi \ihere more I~\.iurahlc ieriiisxrï coniained in <~iheILiasncrwin rorcc.
ihe pcrsenigc of jupply .ind job coniraci, siipul.iicrl in ihc sdid L.iu No 835 1..
hcrch\ in~.re~redIO 30 per ccni in iii,dur of indu~tricsand drtiiün shom Ior.iicd
in thé territories outliAed in Article 3 of Law No. 646 of 10 1950 as
amended.
The same percentage also applies to the territories indicated in Article I of Law
No. 835 (3)of 6October 1950as amended. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 291
[Iralion 1e.warldEiigli,srranslationno1reprodrced:/orarror/rrrEr tr~/i.~/l
rrarrsluiion,ee1.Meniori<r(l(the UniredSmres.Annei; 461
11-12.Connï.s~o~ne~c~ WlTH FlAT
3August 1967.
Mr.John D. Clare
VicePresident - Raytheon Europe
President - Raytheon ELSl S.P.A.
Via Ferdinand0 di Savoia, 6
Rome.
Dear Mr. Clare,
Thank you for your letler of July 31. The conversations with your people were
certainly of interest to us, and we appreciated the opporiunity affordcd hy their
recent visit here.
Fiat positiirely intends io gel a foothold in the field on a scale larger than is
now the case with OurAviation activities. Weshall need time. however.10exolore
thc p,>,j,hihiiz, .in4 do the rcquirïd riud) uorWc plan iido ihis h\ ricps o\cr
ihe neii rhrcc monih, or s,>2nd in ;iconichi ih:iI iniludc, al,<>oihsi in id ci^ we
already have.
Anyway, we shall welcomethe honour of a visit [rom your distinguisheclChair-
man of the Board Mr. Charles Adams, during his trip Io ltaly in the firsi half of
Sepiember. 1 look forward to hearing further about his schedule through your
Mr. Bianchi, to make sure 1am available 10meet your Chairman personally.
(Sinned) G. !%NO.
31July 1967.
Dr. Gaudenzio Bono
Managing Director
FlAT S.P.A.
Corso Marconi, 10
Torino
Dear Dr. Bono,
1 have now received the report [rom Messrs. 1. Siobo. A. Profumo and
R. Bianchi of their meeting with you in Turin las1Wednesday26th July. We were292 ELETTRONICA SICULA
encouraged to arrange this meeting following our last discussions with the Hon.
La Leggia of ESPI and Dr. E. Carbone, General Manager of the Ministry of
Industry and Trade, with whom we have heen discussing the Raytheon-ELSI
situation and plans. The Hon. La Leggia told us that on Tuesday 24th ESPl
would behaving discussions with FlAT both over the car assembly plant in Sicily
and over the situation in Rayiheon-ELSI, with a view to your joining ESPI and
ourselvesas part of ajoint activity relatcd to Raytheon-ELSI.
Wefelt that it was important that you had the opportunity 10really understand
Ourviewof Ournew philosophy in ELSI, what weare actually doing and what we
are trying to do, and hence we were very pleased to follow up the Hon. La
Leggia'ssuggestion that weshould contact FlAT directly for this purpose. 1hope
that the meeting was satisfactory from your point of view in providing this infor-
mation.
From the reports of the Raytheon-ELSI people it would appear that you are
considering further possihilities as a result of the meeting and 1 presume as a
result ofyour meeting with ESPI. 1understand that it was left with you to contact
Mr. R. Bianchi in Rome for information to enahle you to consider these possihili-
ties. 1am sure you will realize that we are dealing with a very dynamic situation
and that the recent Raytheon Management activity, coupled with Raytheon plan-
nine for the fu~~ ~.,is~no~ ~l al1reflected in the oresent balance sheet for instance.
c~~~
iihich i; iiecc~\:~ril)more oi:i hisior~~.adIiiruniciii.
Wiili ihc ippropriaic p4rini.r in Sicil!. uc drc.cnihusi.i~ticabdut ihc iuiurc
~~ssihilitie;and Izcl iruoulJ bc \#cl1\iiirtliwhile IO nruducc for \IIU :in.iddilional
note summarizing Our proposais to ESPI, our present aclivities and Our future
plans, and to have this available with any other information that we pass on to
you. When this is ready 1think it would be veryworthwhile if we could have the
oo..r~un~tv ,o discuss it with vou. 1am exoectine that Mr. Charles Adams. the
Ch;iirmsn oiihc Board oiihi. K;i!iiicon coniiim;. uill hc in liai) during ihc iirii
trio \vech, O( Si.pii.mber,t> pcrhxpr ihis uould hc an Appropriai? iinic 1,)Ir! 10
.irr~n-e these dircu>*iunr I uill :gjk \Ir Hianchi ti,Loiiirci bour ùrliccin ihc ver)
near future to seeif a mutually convenient date can be arranged.
(Signed) John D. CLAKE,
VicePresident - Raytheon Europe
President - Raytheon-ELSI S.P.A.
11-13.MINUTE OSF MEETING WlTH IR1 OF 4 JANUARY 1968
[Sec also1,MemoriolofrheUniredSrares,Anner 15,Erhibir Cl
MEETING OF IRI-RAYTHEON - 4 JANUARY 1968
SUMMARY OF KEYPOINTS
1. IR1 have looked at the new study prescnted by Raytheon and have come to
the same conclusions as those reached by Finmeccanica in the previous study.294 ELCTTRONICA SICULA
(e) By Our own efforts we have shown ihat the present product lines can be
stabilized and new oroducts can be fed in alone ihe-lines we sueeest- -- ~- we~a~~~-
looking for corneorg;inizaiion in Italy ihai is interesled in the plïnned elpanslon
of ihis alrcïd) e\isiiny asci in Sicily
fi, WCihourhi ihai il u,ai wiihin IRl's icrms oi rcferencc io hc inicrcstcd in
huçhsituaiions psrtisularly \rith regard to ihr po\<ihle dc\elopnieni oielecironics
in the 1ci.i.ogiorno as pciri ofihc 5-)car pl;inc.
IR1 and Finmeccanica point out that within the IR1 Croup, there are no
concrete possibilities of ensuring a direct market ouilet for Raytheon-ELSl's
production. The onlv exceptions to this siaiement concern areas of mareinal
interest. or areas in which Other IR1 companies, which already have substantial - ~ ~
problems of their ownto be solved, arecurrently op~ra~ing (as-or example ATES,
which also isin Sicily).
In summary, IR1 helieves that Raytheon-ELSl's situation cannot be made
economically sound on the basis of the progrdm ouilined in the documentation
submitied, and therefore doesnot seca possibiliiy of intervention in the company.
This belief is strenethened bv IRl's conviction as mentioned ahove that~its~int~r-~~-
\enlion wodd noi bring ahoui an? signiticant change in the ni;zrkcting position
of ihe comp:iny. or a, ciconscqucncc in the cumpan. . b~siceconimic ~osiiion.
wbich would remain a serious pioblem area.
However. IR1 desires to point out that even though - with great regret - it
cannot accept Raytheon's request at this time, il remains possible that a later
requestby Raytheon might receivemore favorable consideration. Such a decision
could come when IRI, which intends IO develop ils aciivities in the electronics
field. has completed an analysis in this area which is now being made in co-
operation with other national groups interested in the electronics sector.
This analysis, which is exwcted to take one vear. will oermit a review of the
general prohlcni u,ith niuih grcaler un der si a Itnshuu^\^a^l. leiid10 JJcier-
min;ition of wheihrr ituill be pussihlc for IR1 10 conicniplïtc ,Ispc~ialprogrtini
ofinteri~eniion IO ;issist in riutiina K3\ihcon-F.I.SI on ;iround h~>ij. .ircuuc>ieJ
bv Ravtheon
.~r.~l:ire indic3irJ hi3 Jivappointnicnt wiih the prescni decisioii tiiade h) IKI
and look iioic ol'ihc iuriher declar~iionc of ihc Insiiiutc. sireicinr: ih31 unfortu-
naiely much time has passedsincc the first conversations on the ËLSI oroblem.
and ihat in the intervening period Raytheon has had to devote many ifforts ti
the ELSl situation, without outside assistance.
11-14. JUSTIN GUIDI'S DESCRIPTIO OF JAXUARYEARTHQUAKES
[Nor reproduced] OOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 295
11-15.HiLLYEn'M s INUTESD,ATEL 2)1 FERRUAR1 968.OF THE HON.CAROLLO'S
MBETIN GN 20 FEBRUAR1 Y968WITH C. F. ADAMS
(See also 1,Mi,nloria/ofrl~eUnitedSrares, A11nr.ï15,E-~hibirB.and III.
Correspondence.Nos.41.52 <rnd54/
21 February 1968.
MEETINGWlTH HON. VlNCliNZO<:AROLLO PR,ESII>ENTOFTHE SlClLlANREGION.
IN HIS HOTEL ROOM INROME~ ,OTHFEB.
Presenr: Messrs. Adams, Clare, Hillyer, and Profumo.
CFA opened the meeting with the firsl paragraph orour prepared speech (Ray-
theon is convinced that ELSl can succeed with an appropriate partner, but we
willnot put up any more cash, etc.), and asked JDIOprescnt Ourinterpretation
of Hon. C'spositionat our last meeting.
Hon. C. interrupted saying he is aware he made a commitment to us that IR1
or ESPI would intervene within a month which has not been fulfilled because of
theearthquakes. The position today is as it was in December. but tomorrow or at
latest the day aftcr tomorrow, he willmeet with Messrs. Priti, Colombo, Andriotti,
and Petrilli to discuss the overall oackare ororram to aid Sicilv.As a oart of this
plan, Hon. C. hoped to obtain a Central ~ov't commitment 6 develop the elec-
tronics industry in Sicily. This commitment would politically be equiv;ilent to
insuring IR1help for ELSI.
JDC emohasized thai too much lime has nassed and that alihoueh FlAT has
offered usa Director. IR1 will only agree to'provide an unofficial advisor. CFA
added that IR1 would not consider a Selenia and ELSl mergcr which we had
proposed.
Hon. C. was quite aware of whar IR1had told us. and knows that ClPE cannot
act until the five-yenrplan is out. However, in his meetingsof the next da) or two
he hopes to obtain a political commitment for electronics in Sicily, which will
insure IR1 action in the next 8/10 months and which will allow ESPI to ;ict with
fewerlimitations. In short, the interestsytheon and the Region coincide, as
1. The Region wishesto protect any sources ofjobs. and therefore wishesto
protectELSI, and
2. The Region wishes to use ELSl as its principal reason cor centring the
national electronics plan on Sicilyand in fact on ELSI. and is using ELSl
as a positiveelement in the current Ministerial leveltalks.
3. If Hon. C. cange1 a National Gov't commitment to come to Sicilythrough
ELSI. this helos evervone. There will be a "ves" or "no. .eolv or1this in
the next day or two; Hon. C. willcal1us to meet again when he knows the
answer and before hereturns 10Sicily.
CFA stressed that ELSl cannot survive without immediate cash help, which
Raytheon cannot provide. JDC drew a precise time chart showing:
(a) 23 Feb.- Board Meeting.
(b) 26to 29 Feb. - inevitable bank crisis
(c) 8 March- we run out of money and shut the plant
Hon. C. repcated that Our interests are the same, to keep ELSl alive and io
improve it. Hehopes to achievethis aim in the best wayfor al1of us by ohtaining
a political commitment for support from IR1 within the next Iwo days. However,if this plan dues not succeed, he gives us his "broadesi assurances" that ESPl
would then promptly intervene with Lire4 billion.
CFA stated that while our interests coincide with those of the region. as a
private company we do have obligations to Ourstockholders. While we can con-
tinue tu provide ELSl with management and technology, we cannot provide
money. without which ELSI willshortlydisappear.
JDC posed fivequestions as follows:
1. Will Hon. C. visit the plant this week?
Ans. No. because he will bc here in Rome working on Moro et O/.
Anyway he did visit the plant sixyears ago.
2. Will he promise to talktu us again before returning to Palermo?
Ans. Yes.
3. If ihe National Gov't will no1iniervene, what will be the extent of ESPl's
intervention?
Ans. A very difficult question based on Our decision on whether we
have the experience and the intelligencelocally 10manage such an enter-
prise. (Hon. C. obviously felt local intelligencewould not be sufficient,
later stating that ESPl would run the company in10the ground in a year
or two if left to its own devices.) JDC attempted valiantly 10 argue that
with a FIAT director and possibly an IR1director acting for ESPI, ESPl
could make a go of a majority position, particularly with continuing
management help from Raytheon. Carollo would not buy this argument.
unless the presence of FIAT and/or IR1 was backed up by a financial
commitment.
4. If the National Gov't willnot intervene before you return to Palermo. can
you give us an immediate private commitment that the Region will in-
iervene?
Ans. Yes.
5. How long will it take ESPl to go through the bureaucraiic formaliiics
leading to final investment?
Ans. 30io 60 days.
The meeting concluded with expressions of sympathy tu Hon. C. for the disas-
ters in the Region and of gratitude for his attention tu our problem. (Il was
decided by privaie exchanges no1 to leave any documents with Hon. C. The
preprepared "notes for the meeting" wereleft at his hotel later that evening wiih
noint (8)and the ~recedine naraeraoh on ~ossible labor ~roblems deleted. The
follow~ngday. 21 $eb., a le?&roGlining ~i~theon's condiiions for continuing at
ELSl together with a draft shareholders agreement with ESPl and summary
thereof, were delivered to Hon. C'shotel.) DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 297
11-16,C. F. ADAMSL 'E~R TO n<~Hos. CAROLLO
[ltolion re.rtno1reprodilircedl
(TransloiionJ
Confide-miol By Hond
21 February 1968.
Hon. VincenzoCarollo
President of the "Giunta
Regionale Siciliana"
c/o Hotel Metropol
Rome
Mydear Honorable President,
1would liketo express Ourgratitude for the understanding and the constructive
spirit you demonstrated in Ourtalks ol last night on the Raythean-ELSI situation.
1would also like to confirm io yoii the complete willingnessof Raytheon Com-
pany to stand behind the positive poinls outlined in the notes for Our nieeting
with you which we left al your Hotel following the meeting. In summary. given
appropriate assistance, Raytheon remains willing, if you should so desire, to act
as follows:
1. Continue to orovide manaee-cnt assistance to ELSl in Palermo, and the
ruppori oi .>Urinicrn.ition.il or~.inimti.>nfc>rtlie ijlc of t.I.SI pr.>Ju;is.
2 Continuc IGproilde ~ndincrc3sc ihc ischnical suppi)rt io ELSl frtiin uur
UScompany.
3. Negotiale a merger of Selenia and ELSI, or a suitable business coinbina-
tion between the two, if this is permitted by Finmeccanica.
4. Transfer the production of marine radar from Selenia to ELSI, if this is
permitted by Finmeccanica.
5. Provide technical adviceto the Sicilian Region on the general development
ofits electronic industry.
6. Spread the payment of al1 amounts now owing by ELSl to Raytheon
Company over a ten-year period.
Naturally, as a pnvate industrial company with obvious responsibilities to Our
shareholders. we mus1define withi~uiambieui-. certain minimum indispensable
condiiions iiir thc continuaiion of OurpariicipJiidn in EI.S\\lriatc.ija prcmisc
thai thcscsondit~on~arc rcndcrcd iic2ejs;lryh) )c.ir of hard nork and icry I3rgc
investments of caoital which we have dcdicated to Our Palermo associaied com-
pany, and al1this at Ourowiiinitiative.
These conditions will apply whclher or not the Central Government gives you
a political commitment to assis1ELSI. To keep OurSiciliancompany in existence,
wemust count on your consent, in general, to the following:
1. Raytheon Company will no1undertake to supply further financial coniri-
butions to ELSI.
2. As already indicated in Ourreports to ESPI, the useof any newinvestment
in ELSl must include the cancelldtion of al1 bank guarantees currently
provided by Raytheon Company in favor of ELSI.298 ELETTRONICA SlCULA
3. Wewould orefer to become minoritv shareholders in E~SI. As a maximum ~~ ~ ~
compromise, we could maintain a 50 per cent participation in sharehold-
ings. We cannot consider a solution which would leave us as a maiority . .
shareholder.
4. A 50150 participation hetween Raytheon and ESPI would require the
investment of 4 billion Lire on ESPl's part. In such an event, we would
have to ask assurances that an additional intervention willhe forthcoming
in some form capable of permitting the cancellation of al1 other bank
guarantees weare currently supplying in favor of Raytheon-ELSI.
5. To insure that the banks will not cause the closing of Raytheon-ELSI
within the very near future, the management of the company should be
authorized within the next few days to communicate to the banks on a
strictly confidential basis that the Region has undertaken to assume a
participation in ELSl of at least 4 billion, which will be paid in no later
than 30 April 1968.
1suhmit these conditions now not to take a harsh or insensitive attitude for the
problem of ELSI and the Region, but only because 1wish to clarify such condi-
tions without possihility of misunderstanding the general position of Ourcompany
as a orivate enterorise.
~"rthermore, iattach to the present letter a draft of a proposal (and a relative
summary), which indicates the form of the agreement with ESPl which we would
prefer.
We also feel under a duty to bring Io your knowledge the fact that, hecause of
the intense cornpetition which has recently arisen in the fieldof cathode ray tubes
for television sets, from a strictly commercial point of viewil would benecessary
to review and correct certain asoects of the aereements hetween ELSl and the
Unions, even though this might iurn out to be-unwelcome by the unions them-
selves.The management of ELSl proposes to initiate the necessary negotiations
without delay. in order to carry them to conclusion hefore the Reeion intervention
is made a matter of public knowledge. It is also dutiful on our part to infom you
that the introduction of newproposais in ELSI may not take place within a period
of lime sufficiently short to absorh the personnel now assigned to subsidized
training courses. At least from an industrial point of view, it would he advisable
to solve also this problem before the public is made aware of the Region's inter-
vention.
1personally, and al1of my colleagues, sincerely appreciate al1the efforts you
have dedicated to the problem of Raytheon-ELSI. We al1 hope that it will be
possible to solve this problem in the best common interest.
Raytheon Company
(Signedj Charles F. ADAMS,
Chairman of the Board. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 299
11-17.JOHPCI LARE LETTER TOTHE HOS.CAROLLO DATED 28 FERRUAR1 Y!168
(/ruliofcJ.lnat rcpraducer(l
28February I!K58.
Hon. VincenzoCarollo
President of theJunizi
for the Sicilian Region
Orleans Palace
Independenza Square
Palermo
Dear Hon. Carollo,
1will not conceal that I was disappointed and disturbed io realize yesterday
that you would not be at the meeting in Rome, alter 1had ken informed that
you would be present. Hon. La Loggia outlined again for us your viewpoint
which really reconfirmed whai you told us in Our meeting las1week. A copy of
the notes we produced of our meeting with Hon. La Loggia isenclosed.
I willbe visitingPalermo iomorrow and 1hope that 1shall have theopportunity
to meet wiih you as you promised ai Ourlast meeting in Rome. 1shall iheii have
the oooortunitv to hand deliver these notes. If 1cannot meet wiih vou. 1will
arrangéto send this letter aiid the notes to you and will then regretfu~lyhave to
begin to presume that your decision is negative.
1would like to reconfirm Ourposition :~
1. WCdo not want just money. Weneed:
(u) New capital;
(b) A partner to help us obtiiin the bencfits to which Mezzogiorno com-
panies are entitled;
(c) A partner to help us find new products.
This is as we have consisientlyated throughoui al1ofour reports.
2. We willnot take a majority position.
3. Our offer of the 50150arrangement is our ultimate compromise. WCneed
you to be commiiied as much as weare. This willstillcal1for an investment of six
billion lireof which two billion will now have 10 be in some interesi-free form
othcr ihon ordinlirj wpii~l stock
4 \Vr nccd 10 rcnrgoii.iic giur:igrseiiicnt, uiih th: Cnion, WCrcg.ird this as
an essential prerequisite for ;tny viablefuture.
5. We regard it as esseniial to trim down the present personnel to become as
compeiitive as possible before furthçr expansion.
6. Time is now very short. 1havç already told you about the problerns which
are pressing us, in relation to Our lime schedule according to which evenls may
precipitate irreparable consequences.
This isjus1a reconfirmation of the points we have already made clear 10you. 1
did indicate to Hon. La Loggia a possible alternative solulion which you might
like to consider. He promised that he would report this to you over the telephone
and 1am looking forward to discussing this other possibility with you when we
meet tomorrow.
(Signed) John D. CLARE,
VicePresident, General
cc: Hon. La Loggia Manager, Europe.
(ESPI) DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 301
of closing the company's activities. These few persons will also be needed to
organize and carry out without delay the payment of al1 that is due to the
dismissed personnel.
With deep regret, weherebycommunicate to you your dismissal withimmediate
effect for the foregoing reasons. 70 facilitate your search for new work, the
comoanv aerees that vou need not work before or durine the oeriod of the notice
whiih i; nirmal circimstances woiild have been sent to you. As a consequence,
as of today, you are no .onger to report for work sincethe company has nu more
work to offer.
You will be paid an indemnity in substitution of notice equal to the amount
of your remuneration for the period of the notice you are no1given. Such period
willbe counted for the purpose of calculating your severance benefits, and, if
such be the case, for the purpose of any other payments owing 10 you, al1 in
accordance with the laws and agreements in force. Ibewyour Management's
task to notify you as soon as possible of the arrangements being made for the
full payment of al1monies due to you, as wellas for the handling of al1connected
administrative actions.
Your Management wishes to express to you their appreciation for the work
done by you for the company and sincerelyhopes that you willbe able to obtain
soon new and adequate employment.
RAYTHEON-ELSI S.P.A.
The Managing Director.
11-21.FORM OF LEITERS TOREIAINED EMPLOYEES
[Iralian resrandEnglislitranslarionnorreproduced]
11-23.Mn. OPPENHEIM 'NALYS IF ASSET SND ~NVENTORY
[See 1, Mernorialofrhe IJniredSrar, nnex 17.Erhibir A] 11-24TO 11-28.Ex~~rssiosso~ BUYER INTERES ITELSl PROPERTY
31March 1969.
Raytheon Company
141Spring Si.
Lexington. Mass. 02173
Airenrion: Mr. Thomas L. Phillips,
President
Dear Sir,
I have read a report in the WollSrreeiJournalthat your Sicilianltalian venture
is havingdifficulties.
1 am a partner in a machine tool Company, and equipment manufacturing
distributor. Additionally, 1 am a principal in a wide group of manufacturing
companies that have interests hereand ahroad.
1 would be happy to consider what you have as a surplus situation, or as a
manufacturing situation.
My activitiesare wellknown 10:
Firsi National City Bank
399Park Avc.
New York. N.Y. 10022
Mr. ~ri; Schmitt, V.P.
Mr. Thomas Creamer, Sr. V.P.
Tel. 559-3154.
(Signed) Louis D. SRYBSIK.
25April 1969.
Dear Mr. Srybnik,
Thank you for your recent letter to Mr. T. L. Phillips, President of Raytheon
Company, indicating an interest in Raytheon-ELSI S.P.A.
Weare confident that you appreciaie that operations of the Palermo subsidiary
were terrninated early in 1968.However, your suggestionis currently heing con-
sidered and, if further discussions appear appropriate, you wbeladvised at an
early date.
(Signed) John B. Boso.
Mr. Louis D. Sryhnik
S&SMachinery Company
140-53rdStreet
Brooklyn, New York 11232,
bcc: J. Oppenheim
C. H. Resnick. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 303
J. J. Guidi. Rayelro, Rome. MJRC extremely interestedin purchasing microwave
tube equipment and possibly some semiconductor equipment from ELSI. Wewill
send Our engineers to examine equipment available as soon as you can give us
reasonablc assurance that you can seIlto us. Plcaseforward description of equip-
ment. Fukagawa. MJRC
Piraeus, 8 April 1969.
Raytheon Co.
Int'l Sale& Services
Lexington Mass.
US02173.
Gentlemen,
As weare preparing a TV Factory also TV picture tubesfactory in Creece, and
as we heard from Ourlast trip in Europe, you are sellingyour factory in ltaly for
TV picture tubes in black and white. If this is true please let us know al1 the
conditions and terms of al1the machinery sale.
(Signe d. HALAZONITIS.
19May 1969.
Mr. D. Halazonitis
Radiotelephoniki
2 PaleasTrapezis Street,
Piraeus, Greece.
Dear Mr. Halazonitis,
Thank you for your letter of Apri8inquiring as to a TV Factory in Itnly. We
presumethat your letter refersto our formersubsidiary, ELSI, located in Palermo,
Sicily.
The assets of ELSl are under control of a curator whose name and address are
as follows: Avv. Giuseppe Siracusa, Curatore del Fallimento della ELSl S.p.A.,
Piazza de Ungheria 84,90141 Palermo, Sicily,Italy.
There may well be individual negotiations with respect to the purchase of
equipment for product lines including television tubes in the future. There may
also be public auctions held at which you maywishto participate. 1would suggest304 ELETTRONICA SICULA
that you writeto the curatordirectly expressing yourinterest andinquiring as to
conditions and terms.
(Signed) Joseph OPPENHEIM,
VicePresident
International AKairs.
Cc. Avv.G. Bisconti.
Avv.G. Siracusa.
P.S. If you will furnish us with copies of your inquiry to the curator, we will
attempt to be helpfulin connection with your interest whereverwecan.
Piraeus, 12June 1969.
Raytheon Company
Lexington/Mass 02173.
Dear MI. Oppenheim,
Thank you verymuch for your kind letter of 19th May, contents of which has
been duly noted.
As youcan see as per enclosedcopy of Ourletter addressed to Mr. G. Siracusa,
weare asking of what we shall need.
(Signed) D. HALAZONITIS.
Piraeus, 12June 1969.
Avv. G. Siracusa
Piazza de Ungheria 84
90141Palermo
Sicily
Dear Sir,
We go1your address (rom Raytheon Company and we would liketo inforrn
you that we are prepanng a TV Factory also TV picture tubes Factory in Greece.
We have heard that ELSI Factory machinery and equipment will be sold out. As
weare interested please letus know al1the conditions on this. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 305
18Fehruary 1969.
Mr. Egidio Rinaldi
Via Biscolati,76
Roma, ltaly
Dear Mr. Rinaldi,
Up 10this date, 1have not received the lis1of equipment, with prices, which
Mr. Siracusa promised to scnd proniptly.
Could 1trouble you again to inquire from Mr. Siracusa what kas happened?
S~ICOND~CTORC E~LIFORNIS A., .
(Signed) F. J. KING
7 August 1968.
Mr. Joe O~oenheim
~exington'Eor~orate Headquarters
Lexington, Massachusetts.
Dear Joe,
Fritz Gross calledmeyesterdayand asked me to meetwith Mr. Myhre, General
Manaeer of Terma Elektronisk lndustri AIS. whosecard isenclosed.
~ri$l!.hir Myhrr WJS interestcd inthe p~issibilil?of hi\ conlpïn). producing
thc S and X Rand items iurmerly produrd hy EISI. Ilc evidenccd intçresl in
~urchüsine ELSl's equiomenl 2nd in obiaininc relsied technic~lariistanw from
-~ ~ ~
,~ --~~~
Several of the officiaisof his Companywill he in Rome in the near rutitre for
discussionswith SeleniaOfficiais.He would like for them to see you at that lime
about the possiblepurchase ofthis ELSI line
(Signed) Howard E. HENSLEICH. Unnumbered Documents. Volume II
111-1.DIARYENTRIE SEGARDlNG DISCUSSION WlTH THE WON.CARBON EN 29
MARCH AND 30 MARCH'
[See1,Memorial ojrhe United Srares. Annex 15, E.rhibir Hl
111-2.MAYOR'D SECREEOF REQUISITION
[Iralian rexr nor reproduced;/or rhe English frans1,p. 391ee
[Iralian tex1nor reproduced;for the English rransl1,Memorial of rhe
Unired Srares, Annex 353
[Iralian rexr no1reproduced;for the English rransl1.Memoriol of the
Uniied Srares. Annex 341
111-5.ELSI'STELEGRA MND APPEAL TO THE MAYOR OF PALERMO
[Italian iexrs nor reproduced]
9 April 1968.
TELEGRAM TO THE MAYOROF PALERMO
Raytheon-ELSI is firmly opposed to the requisitioning (foreclosure) of the
Company property ordered by you and to the initiation of related inventory
proceedings. We consider the requisitioning as a mere att10pdelay the
'The saiddiscussionstook pon30 and31March 1968,proceedings. We consider the requisitioning as a mere attempt to delay the
soluiion of the orohlem and to crrdte false ho~es amone the ELSI workers. in
ihe conipdny anil in the Kegion. Plcazenote ihii lhc posiirin of Kayiheon-ELSI
is 2s follous Firii. ihc requisiiioniiig is iIlcg;il Second. cnicring ihe propcriy for
iniii~iinr An in\.entorvij ilIse31 If vou enter the f~icilitv wilhuui icirnial a~ariival
by the Ggnizant miliiary auihontiés you incur the risk of violating the la\vs and
regulations governing national security and miliiary secrets and you will be
responsible for any such violations. Third, you will be responsible for any cost
and cxpenses up to the date the property is restored to the Company. Fourth,
you will be responsiblc for any damages to the property. Fifth, you will be
responsiblc for any damages to Raytheon-ELSI and ils sharcholders that may
result from the loss of control over the propcrty by the Raytheon-ELSI manage-
ment including damages or lossesthrough nonfulfillment of contractual obliga-
tions. Sixth, apart from the fundamental illegality of the requisitioning please
note that you are not authorized to use, touch, inspect or inventory the books,
arihires. iarchou;~. supplies. cquipmeni. munc) orother properi) <;iRii)ihr.on-
ELSl no1specilically Iisted in thc rcquisilioning order. Scventh. )ou h:i\,c no righi
Io useihc ir:iJeniark or rcgisiered name klonging to Rayiheon-ELSI or u\eJ by
it under license from third parties. Eighth, you have no righi to usc patents or
technical information belonging to Raytheon-ELSI or used by it under license
from lhird parties. Ninth, you have no right Io use any personnel currently
employed by Raytheon-ELSI. Tenth, you have no right to interfere in the con-
tractual relations of Ravtheon-ELSI. Eleventh. vour invitaiionto Ravtheon-ELSI
IO ?end obscri,ers dues noi includc ihe neccasdry guaranices li~r the pcrsonal
sdleiy of iheje uhscr\ers TueIfth. ihe nian'igemcni of R3yiheon-ELSI urll iigur-
ously pursue al1available legal avenuesandshall take any other stepsconducive
to the revocation of the requisilioning with resulting damages,against the mayor
and the Central Government and individuals who commit illegal acts in any
form.
Copies of this telegram bcing sent to the Hon. President of the Council, Moro.
The Ministers Fanfani, Pierdccini, Andreotti. Thc Presideni of the Sicilian llegion
Carollo. The Embassyof the United Statesin Rome and the Amcrican Coiisulatc
Gcncral in Palermo as well as the Prefect of Palcrmo, Colonel Alemanno, SID-
USPA, Col. Inzerillo, Palermo, Dr. Fenu, Co-ordination Serviceand Ing. I.aurin,
Raytheon-ELSI.
14July 1969.
(Tronslorion)
Raytheon-ELSI S.p.A., with registered office in Pdlermo, Via Villagrazia 79, by
ils legal representative
Whereus
- the Mayor of the City of Palermo, by order served on 2 April 1968,ordered
the requisilion of the plant and equipment of the Company, located in Pal-
ermo, Via Villagrazia 79;308 ELETTRONICA SICULA
- the company considers said order of the Mayor absolutely illegaland lacking
any lawful grounds, and also arbitrary and unfit to solve the social and
economic problems referred to in said order;
- said illegal and arbitrary order of the Mayor is causing serious damages and
mav cause irre~arabie damaees to the comoanv: . ,.
- thgcompany intends to resi;t said illegal and arbitrary order of the Mayor
using al1 legal means, and demands repayment of al1damages sufiered and
lnvires
the Mayor of Palermo to revoke immediately said order in order to prevent the
situation from becoming worsc and further irreparable damages being suffered;
Deciares
- that it rejects any and al1responsibility howeverarising out of. or connected
with, said illegal and arbitrary order;
- that in any event, beginning with the moment said illegaland arbitrary order
has been served, - without prejudice to any other right of the company -
the responsibility for anything that may happen relative to the plant and
equipment and to every other matter forming the object of sdid order or of
subsequent orders rests exclusivelywith the authority which has issued such
order or orders and the company shall take or accept no responsibility
whatsoever, and in particular, without limiting the generality of the above,
said Authority and ils agents shall have each and every responsibility arising
out of the violation of, or negligent, mistaken or omitted observance of
security rules for the plant, the equipment and every other asset of the
company; the violation of, or negligent, mistaken or omitted observance of
mles relating to the protection of military secrets; the negligent, mistaken or
omitted use of any equipment or object located on the premises of the
Company, harmful events such as fire or other natural events;
- that in any event, starting with the moment said illegal and arbitrary order
has been served - without prejudice 10 every orher right of the company -
every cost, expense and burden relative to the plant. the equipment and the
useofsame, their maintenance, etc., shall beexclusivelyborne hy the authority
which has issued the order;
- that in any event starting with the moment said illegal and arbitrary order
has been served - without prejudice to every other right of the company -
each and every liability however arising out of the impossibility for the
company to fulfill - or to fulfill in time - its obligations because of its
inability to dispose of the plant and of what is situated therein or in any way
because or by reason of said illegal and arbitrary order shall rest with the
authority which has issued such order and not with the company.
Warns
the Mayor of the City of Palermo no1 to further violate or interfere with the
rights of the company and in particular, without limiting the generality of the
foregoing, not to interfere in any manner with the activities of the company's
eovernine-bodies or officers in the oerformance of the mandates lawfullv vested
in [hem. no1 io usc in <in)manne, thc namc. iradeniarh. pairnis. indusir131and
çommcrciiilsccrrt>ouncd b) the compan) or used h) ilunder Iauiul agrccmcntj DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 309
with ihird parties; not to interfere in any manner with the relationships htween
the company and its customers or ils suppliers or between the company and ils
employees; and further recallingtheconsiderable contribution ofcapital, technol-
ogy and education that Raytheon-ELSI has broughi to the Sicilianecononiy and
to Palermo in particular, in answertoan invitation bythe Iialian and the Regional
Government to private industry with a view to facilitate and accelerate the
industrial and economic development of the island, warns theMayor of the City
of Palermo not to implement with further illegal and arbitrary acts an order
which is essentially confiscatoririsubstance. if no1 in form, an order which
appears as a hostile act against private industry and againsi American industry
in pariicular which has looked and still looksupon Sicilywith particular iriendli-
ness and benevolence.
RAYTHEON-ELSI S.11.A.
for The Board of Directors,
(Signed) JustinJ.Guini,
Managing Director.
II April 1968.
Signed to certily the autbenticity of the signatures affixedat the bottom of the
foregoing act and in the margins of the first sheet. countersigned by me. by Mr.
Justin Joseph Guidi, born in New Alexandria. Pennsylvania(USA) on 16Novern-
ber 1924, resident in Rome, Via Salsomaggiore 4, and for the purposes of his
officein Palermo, ViaVillagrazi79,a person of whose identit1am certain.
Rome, II April 1968.
(Signeil)Dr. Carlo RAITI,
Notary in Rome.
At the request of Mr. Justin Joseph Guidi, legal representative of Raytheon-
ELSl S.p.A., resident in Rome, Via Salsomaggiore4, and for the purposes of his
office inPalermo, Via Villagrazia 79, the undersigned adjuvantjudicial officerhas
notifiedthis act to the Mayor of Palermo. in PiazzaPretoria, Palaceof the Eagles,
in the hands of Mr. Vincenzo Ferrari. an employee of the Legal Atfairs De-
partment.
12April 1968.
(Signe</)Giovanni FRINCHI,
Adj.Judic. Office- Palermo.
111-6.NEWSPAPE CRLIPPINGDSESCRIBIN WGORK~:D REMONSTRATIONS
[Ir<ilianrrrr andEnglishtrunsl(rrno1rc~prot/irce<lJ310 ELETTRONICA SICULA
111-7.ELSI'SAPPEALTO THEPREFECT
[Italian textnotreproducedf;or the Englishtranslat1,Memorialo/rhe
UnitedStores,Annex361
[Italian tex1und English translnotreproduced:for anothtrranslutionsee
1.Memorialof theUniiedStates,Annex761
111-9.THECURATORC 'OMPLAIN ATCAINS THE ~TAL~ANGOVERNME NND THE
MAYOR OF PALERM OORDAMAGES
111-10.MINUTE SF16APRIL1968MEETING WlTH THEHON.CAROLLO
MEETING WlTHHON. CAROLLO
Present:J.D. Clare, J. Oppenheim, J. Scopelliti
Palermo, 16April 1968
Hon. Carollo asked what had happened at the meeting held with Minister
Pierascini. Mr. Clare repliedthat in effectnothing had happened. Pierasciniisstill
talki-e to IRI. but cannot tell IR1 what to do. We exolained carefullv what our
propo\;il of szlling the ;iiscij rc~I1)means The Slini\icr uds iinthii.r.d
a,kçd for dci~ilsahoui ihz prise put on the :irjets. ~ndmeniioncd th? poi\ihility
of IR1coming in with new products.
Hon. Carollo stated that tomorrow Prime Minister Moro will hold a definitive
mcciiiig ulih the Ministsrs anil c\peris ciiiiccrncd One ,)i ihc prohlem. io hc
füccdis ihat ihc Regiondocs no1knov exacil! uhat R~)thei)n ucinis
Mr. <:larerc~licdthiu.eh,i\c iold the Kcaion inin\ tirne, .ind in crexi ilei~il
what we want.'~f course any proposal is subiect 10negotiation, but <asically we
have consistently asked for financial participation by the Region and by IRI, and
for new products from IRI. If ELSl is left as it is, it will continue to lose money,
which IR1 has quite correctly noted. Yet IR1 is in a position to help Raytheon
bring new products into ELSI. IRl's present product lines are not suficient to
maintain the Company, and therefore IR1 will not participate. However, with
IRI's product support, ELSl could be made profitable. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 311
Hon. Carollo staied that Raytheon hasalways emphasized ihe value of BLSl's
trained labor force. However. the Central Govcrnment has been w~~tine ~ ~ ~-~ ~ ~ ~
demonstration of our financialandproduction strenglh. which we havenot given.
Had we ken ablc to show someconcreie results, we would have beenable to deal
from a strong position; instead, with the factory closcd. the situation has been
precipitated
Carollo's feeling is thai Raytheon jus1 wants to gel out of ELSI. with the
thougbt that there may bc a tax break on someof the losses.However, Raytheon
ofcourse wishes 10realize the best price possiblefor the assetsand know-how of
ELSI, perhaps 10to 12billion lire. Carollo's belief. basedon studies made by his
experts. is that the assetsare worth much, much lessthan this. A solution might
k to arbitrale the sale pnce from Raytheon to the Region, with an arbitration
board of three men representingthe Region, Raytheon, and the local magistrate.
However. since the plant is closed, the value of the land. buildings, and material
has been reduccd by 90 per cent. Raytheon made an error, in Carollo's opinion,
hy closing the plant before proposing liquidation and ihus automatically devalu-
ing the assets.
Carollo is quiie preparcd to hire al1ELSl's personnel, evcn at 2.5 billion lire a
year, and put them to work in the mines until we go bankrupt and seIl offOur
assets.If hecan face this possibility. we must too.
IR1 will come 10 Sicily with a plant for telephone equipment. Carollo had
hoped we would show strength hy being present with an open factory, in which
caseIR1 mirhi have dealt with us. With a closed factorv. we have no nosition.
~peakinifr;inkly. Carollu iolil u.. that lie ha\ .igre;'mcni fromCIPE thai an
clccironics pl'ini cmpli>>ing ?.UDtpeople uill hc e\tahlishcd in P~lcrmo. uhich ii
satisC~ctnrvirom ;ipolitisïl point of \,ieu. Fruin ihc Keciun', noint ofiicu IIis
well worth while to'keep ELSI'S personnel together on?he ~é~i0n.spayroil for
two years at a cosi of four billion lire. asthis amount will be returned many times
over by the taxesthe ncw plant will pay. This plan will be reviewed at tomorrow's
meetine with Moro. Carollo would orefer to see ELSl's oeonle workine with
. . -
tl.SI remaining open. 3s in this m:inner there ui>ulJ bc ;ichancc <iI'maini3ining
hoth CLSl's priiduci Iincs 2nd the producis orthe ncu pl.ini
Hiiu.cver. II' EI.SI rcm:iins clojed. thc hdnks uill noi heli, R3,thr.ii('arollo
feels that, unfortunütely, Raytheon has not followed his'advice; we had the
strength to influence the Central Government before closing ELSI. As things
stand, there is no point in dealing with IR1 whilc ELSl isclosed.
Mr. Clare Dointcd out that we have made continuous efforts 10 interest the
Cc~nirdl~;o\crnmcni in Our pri,hlem. nnd h.i\c nui been Iisicned io. \\' s;ii,e
pr<~poscd many ua) sof soli,ing ihe ELSI prohlem. including ihc \prsilic tclcphone
cquipincnt ;is a ncu produci for t.LSI uhizh IR1 now plans IO make JI 3scp7rilie
ventüre, and no one was ever willine t- neeotiate wiih us. In ihe meantime we
kcpt puiiing in moncy ;ind ni:inagenieni clTuri. uniil WC ]u<i reached ihc end iii
ihc Iine. Should Rayiheon Iiquid3ic ELSI, WC will hd\c lcft 14billion lire in Sicil).
money that hasserved to train Deoplein diiiicult skills. and ihat hasconsiderablv
helped Italy's balanceof paymeRtsashalf of ELSl's production wasexported.
Carollo asked if we have approached IR1 on a package basis,giving up a part
of our share of Selenia in return for IR1 help on ELSI. If we negotiatejus1 about
ELSI, it will be hard to interest IRI, but a Selenia/ELSI package might inierest
them.
Mr. Clare said thdt such a possibility had been amply explored and turned
down by IRI. He expressedsurprise that ihe Government is willing to undertake
the cost of building and starting-up a new plant. The ELSl plant exists, and has
value for the region. Yet from June to December 1968,when Hon. Carollo was312 ELETTRONICA SICULA
finally elected President of the Region, Raytheon could find no one who would
even listen senously to our proposais. We worked as hard as we could hoth to
improve ELSl's operations and 10 ohtain Government help, but when no help
was forthcoming we had to shut down. Now al1we can offer is the sale of Our
assets. If the Region is not interested in them, we willseIlthem off as best wecan
inside or outside Italy, and the Region willbe the loser.
Carollo indicated that he understands Raytheon's desire to leave, but the Re-
gion does not have the technical or managerial skill to operate such a plant. IR1
would be a possible suhstitute for Raytheon. As a thought, we might wish to
inform our hanks and creditors that we wish to liquidate, and seek an agreed
liquidationplacing al1the assets in the hands of the hanks. As the major bank
creditors are IR1 hanks, they might put pressure on IR1 to come in. If Carollo
could state to Moro tomorrow with a written confirmation that ELSl will he
liquidated, that Raytheon will no1cover ELSl's dehts, and that ELSl's debis will
be paid only to the amount covered by the liquidation value of the assets, this
would be useful to him.
Mr. Clare replied that until recently, wehave been planning a positive future
for ELSI. We are not prepared to state Our position on liquidation vis-à-vis the
hanks; this wilbe determined by what developsin the near future.
Carollo replied that he can prohahly help us. Raytheon is willing to let ELSI
go bankrupt. There are tworoads possible, as follows:
1. Kc.open ihc piani. which givcsusstrength u,iihOurcrcdiiors hccausc the?
willknow ihat if weihould closc again. lhc ;issci reco~~erypotcniial would
be greatly reduced.
2. Keep the plant closed, which is a position of great weakness that can only
lead 10bankruptcy.
Mr. Clare replied that we are not in a position to follow the first road, while
very damaging for Raytheon, should prove a strong point for Carollo in the long
run.
Hon. Carollo said that the problem is that IR1 is upset that Raytheon has al1
the strength in the Selenia agreement. In fact, IR1 hates Raytheon. There will be
a hattle hetween Raytheon and IRI, and we should deal from the strength of
having ELSl open. IR1 is such an adversary of Raytheon that they have advised
Carollo to wait for their new plant and no1 to negotiate on ELSI, as Raytheon
can he forced to kneel down. Raytheon would he well-advised to re-open the
ELSl plant, and with the Region'shelp force IR1 to negotiate. Otherwise, we are
prepared for liquidation. but it willnot he advantageous for Raytheon.
Hon. Carollo concluded the meeting hy saying that he willknow more after the
meeting with Moro in Rome the following day; we can cal1 him to learn the
results.
111-1.HILLYER' Som OF LATE APRILMEETING WlTH THE HON.CAROLLO
[See 1,Menlorialof rheUniredSraies, an ne.371 DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 313
[Nor reproducedf;or an Englishtransiarionse1,Memorialofthe UnitedStates,
Anner38. See also I.C.J. Reports 1989,pp. 34-35]
111-13.RAYTHEON LSTTER TO ELSI ADVISINI GTWILL PUT IN NOFUR.~HER
CAPITAL
7 March 1968.
The Board of Directors of
Raytheon-ELSI S.P.A.
ViaVillagrazia79
Palermo
Attn.:MI. John D. Clare,
Chairman.
Gentlemen,
On reviewof the orooosed balance sheet ofRavtheon-ELSI S.D.A.,as of 30th
Sepieniber 1Y07.and reports of operating siitements sincc thit d11hecomes
app:irent in us thai R:i)ihcon-ELSI requircs addiiiiin~lcquiiy ç~pii.11iiciiriler
continue ils operations.
The ~anaeement of Ravtheon Comnanv has carefullv reviewedthe historv of
itjpïrticip~~~onas a stockholder in ~~~iheon-tl.~TA daic Haytheon'; e&iiy
inrcsinients (crclusi\~eof account, rrceiv;iblcouiiand puaranice\ currcntly
outstanding) isabout 7.5billion Lire.
When added to the euarantees outstandine. Ravtheon's investmentand ohliea-
iionr with respeiIO<J)I~~O~-ELSIümouni IOkorc ih3n 12hillion Lire.
A>yliu knou,. ihe Man~gemcntof Ra)ihron Company and i>fRayihcon.tLS1
have made a determined effort to obtain~equityparticipaiion during the pas1year
hy IRI, ESPI, FlAT and other ltalian concerns. To date, none of them has heen
willingto advance the neededcapital.
Wehave studied Ouroverall obligations to the Stockholders of Raytheon Com-
pany and have also taken into account the newly imposed restrictions upon for-
eign investmentshy the Government of the United States.
Under the circumstances, Raytheon Company cannot obligate itself further
and must decline to subscrihe to anv further stock which miahtbe issued hv
Raytheon-ELSI or to guÿrantee anyadditional loans which mTghtbe made h$
others to Raytheon-ELSI.
WC regret the necessityfor this decisinn which is the only one open to 11sin the
Raytheon Company,
(Signed)Charles F. ADAMS.
Chairman of the Board. ELETTRONICA SICULA
111-1.PPENHE~ METTETOTHE HOMC. AROLLO
[See 1,Mernorialof the UnitedStates, Annex 391
111-1.ROVISIONSOF ~TALCODEREQUIRIN BANKRUPTCY
[Iralian iexr no1reproduced;for rheEnglish translarionsee 1,Mernorialofthe
UnitedStates, Annex 411
[Ilalian text no1reproduced;for rheEnglishfranslorionsee 1,Mernorialofthe
UnitedStates. Annex 431
[Iralian texr no1reproduced;for the Englishrranslationsee 1,Mernorialofihe
UnitedSrores,Annex 441
111-18. ISTOOFCREDITOC ROS'MMITTEE
[Nor reproduced]
111-1. OPIOFTHEADVERTISEME ONTHEAUCTION
[Nor reproduced] DOCUMENTS ATTACNED TO THE COUNTER-MEMORIAL 315
111-20.AFFIDAVIT OFAVV.BISCONTM I,R.OPPENHE~ MND AVV.RFSNICK
(Itulian rronslarionnotreproducedf:or theEnqlisl~rrirnslatisee1,Memorirrlof
theUnitedSlates,Annexes 29.27 and28, respectively]
(Ilalian lext no1reproducedf;or theEnglishIranslalionsre1, Memorio/ifthe
UniredSlures.Anner 951
[With Sicilian Regional Law No. 16of 7June 1969and newspaper clipping in
Annexes]
/Irnliun rextundnewspaper clippingno1reproduced]
Palermo, 27June 1969.
Region of Sicily
Officeof the President
Regional Treasury Department, I.R.S.S. Div. I
File No. 106695
Suhject: Regional Law No. 16of June 1969 - Provisions on Behalf of the Em-
ployees ofthe former ELSl of Palermo
To: Bank of Sicily.Palermo
Central lnstitute for Savings,Palermo
The Hon. Judge in the Bankruptcy Case of
Raytheon-ELSI at
the CivilCourt of Palermo
Article 5 of Regional law of June 1969, reprinted in the Official News of the
SicilianRegion No. 28 of same date, provided for a Region-financed goarantee
on behalf of the above banking institutions for the severancepay due the workers
previously employed by Raytheon-ELSI of Palermo, hased on the amounts al-
lowed for as part of the hankruptcy liabilitiesdetermined by the Court.
In connection with the above the interested bankin- institutions are reauested
Io iuriiishJIiliccarlic,i ilair.psa.iJl,tdir.nicnt ~iip.irti~ip;inlro inJic.iiing
ihr.cxicni16, Iiichr..i<,itlmn uill pr,iiiJc finïniing316 ELETTRONICA SICULA
For the issuanceofa formal guarantee the undersignedwillohtain the following
documentation :
- ahstract of the bankruptcy statement released by the Clerk of the Court
relative to the individual credits granted the said workers indicating, for each
of them, thejob title held withinthe hankrupt Company;
- authorization by the Court to proceed with the steps provided for in Articles
4 and 5 of the above-menlioned Regional law, subject Io the condition out-
lined inthe last paragraph of Articl4.
Welook forward to receivingyour immediate response.
The Deputy Assessor
(Attorney Giuseppe CELI).
LAWS AND REGULATIONS
LegislativeAct No. 16of 7June 1969.
Provisions on behalf of the employeesof the former ELSI, Palermo.
The Regional Assemblyhas approved,and the Regional President has enacted,
the followinglaw:
Article 1
For the purpose of the provisions of legislativeact No. 12of 13May 1968,the
additional releaseof L.405 millionis authorized to cover the period 1January-30
April 1969.
Article2
The compensation provided for in Article 1of the aforesaid legislativeact may
no1exceed L.300.000 permonth and ispayable to thoseemployees of the hankrupt
Raytheon-ELSI Coiiipany who worked al the Palermo facility and will be taken
over hy Elettronica Telecomunicazioni in accordance with the terms of the
agreement suhmitted to the Secretary of Labour on 29January 1969.
Article 3
The compensation allowed hy legislativeact No. 12of 13May 1968and suhse-
quent additions and amendments also applies to the employees of the bankrupt
Raytheon-ELSI for the periods during which they were supported by I.N.A.M.
and received medical and medicinal care without collecting economic compen-
sation. DOCUMENTS ATTACHIZD TO THE COUNTER-MEMORIAL 317
The cos1 resulting from the application of this article will be covered out of
appropriations authorized for the implementation of the legislativeacts referred
to above.
Article 4
The credit institutions entrusted with the disbursement services of the Reeion
are authorized to lend to the workers previously employed by ~a~theon-E~G of
Palermo the amount of severance pay du~ ~hem but for the bankruptcy situat.on~
administered by the Court.
The credit institutions will be covered for the credits granted by appropriate
liabilities on thepart of the employeesconcerne*.
Article 5
The 1<1311m:iileuiidcr ihe prwi'ion\ oi the preceding .iriiele3rc gii.ir~ntr.cJb!
ur) of i~h>iJies b) the Rcgi.>n Such guxrdn1r.ci, Iimiied to ihe prinzip.il imly
.inJ ir 3%>1l;ihlc for ihe mahiniiim diiiùuni iii L I.IUU.OOO.(IIiU orJ i ncriod not
exceedingone year fromcompletion of the liquidation of ~a~theon-~i~~.
Article 6
l'hc aJ\xn~e or lzun :i:emJ~ns 1,)the prc:c~i~ngdrt~~lc,WIIIhc 9r;inie.I ,II:in
intcrcsi rate of7per itnt p:r .innuiil ohich iii:IiiJc, periplicr.ile\pcii>ci aiiJ ikes
Keriilting~<>ri~ eiII hc chdrgcd .ipin.i the Ke~i~iii
Article 7
The workers previously employed by Raytheon-ELSI of Palermo and eligible
for fullcompensation under the provisions of Article 2 of legislativeact No. 1115
of 5 November 1968,will be paid, at the expense of the Region, a compensation
amount corresponding to 20 per cent of the total retribution, calculated in accor-
dance with the above-cited criteria.
The former employees of Raytheon-ELSI, top management excluded, who will
be rehired by the new Company at a later date. shall receive a compensation
corresponding to the basic retribution but not exceeding the limits determined in
Article 2 of the Regional Law No. 4 of 8 March 1969,nor the time-limitsindicated
in Article 2 of legislntiveact No. Il 15of 5 November 1968.
For the purpose of the provisions of this Article 7,a total expenditure of up to
L.295,000,000is authorized.
Article 8
Payment of the compensation under the provisions of this law will be the
rcsponsibility of the Regional Assessor'sOffice.The money required willtherefore
be made available to the Sicilian.Fund for the Assistance and Placement of
Unemployed Workers, established per Regional D.L.P. (Iaw) No. 25 of 18April
1951.
Article 9
The burden arising from Articles 1and 7 of this legislation will be absorbe* by
using the money assigne* for other measures in favour of ELSI/Palermo as al-
lowed for in thc arrangement per item 10833of the Regional expense..budget
forecast for the year 1969.318 ELETTRONICA SICULA
Article 10
The burden possihly resulting from the subsidy guarantee per Article 5 above
will he covered by the assignment of L.1,100,000,000from item 20731 of the
Regional budget forthe year 1970,financedby utilizingpart of the funds availahle
through the 1969cessation of the expenditure authorized hy the first paragraph
of Article 12of Regional law No. 10of 4 June 1964,coming up again in the 1969
fiscal year under the provisions of Article 3 of Regional law No. 12 of 3 May
1966.
The burden resulting from Article 6, estimated at L.77,000,000per annum for
three years beginning this year,will he covered in the fiscalyear 1969by utilizing
part of the funds available under item 20911of the hudget report, providing for
Regional budget expenses in the said fiscal year, leaving requirements in the
amount of L.l54,000,000 for the two following fiscal yearsfor which L.4,000,000
willk raised hy utilizingpart of the funds availahle through the 1969cessation
of expenditures authorized hy the first paragraph of Article 12of Regional law
No. 10of 4 June 1964,coming up again in the 1969fiscal year under the provi-
sions of Article 3 of Regional law No. 12 of 3 May 1966, while the remaining
L.150,000,000will he raised with funds availahle from the cessation of expendi-
tures at the conclusion of decennial obligations, as authorized per Article 4, first
paragraph, of Regional lawNo. 51of 5August 1957.
Article II
With the above Article 10 depending on list No. 4 attached to the hudget
forecast for the current financialyear, the followingvariations app:y
Capilal expendirures Amounrin L. million
Item 20911 - Money required for covering
outlays, obligations, etc.
Objecr ofprovision
- Decreasing portion: Provisions for
industrial development incentives . . . helow77
- lncreasing portion: Other provisions
on behalf of theemployeesof the former
ELSI/Palermo over 77
Article 12
The President of the Region is authorized to arrange, by appropriate decrees,
for the necessaryhudget adjustments.
Article 13
This legislativeact will be publicized in the OfficialNewsof the Sicilian Region
and will hecome effectiveon the day of publication. All concerned are obligated
ta observe it,and enforce its observance, as a Law of the Region.
Palermo, 7 June 1969. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 319
111-22.PRESS RELEASE BY CENTRAG LOVERNMEN ITNOVEMBE OF 1968
REPORTINE CLSl TAKEOVER
[Italian tert norreprodziced;ortheEn'~li.shtranslationsee 1.Memorialof the
United States. an ne.471
[Italian rext norreproduced; for anotheE rnglishtranslationsee 1, Memorial of
the UnitedStuies, Annex 591
Palermo - Sunday, 6 April 1969, CiornaleDi Sicilia
ELSl "There Was an Agreement" says Carollo by Ettore Serio
Il should have becn merely a demonstration of solidarity with the employees
of ELSI, for 428 days engaged in a desperatc battle to save their factory from
closine. The intervention of several reeional deouties. and esoeciallv of the ex-
~residint of the Region. Carollo, has transformédit iBstead iDtoa rial and true
political debate, which will have, almost certainly, repercussions at the Sale
d'~rcole.
Las1night the Politeama Theater was filledalmost to the boxes. For the "Easter
of the ELSI workers" al1 the feminine movements and the other factories of
Palermo had given their assent. The interior of the Theater had been festooned
with a long series of slogans. "We are wrong - said one - to hope in who does
not know how - nor wish - to rcsolve our problem." And another: "We want
to be free from need. Give us work to make us feel free."
Phrases of this type give an idea of the tone of the interventions of various
orators (basic syndicalists, exponents of the feminine movement, political men)
who followed one another to the niicrophone. But the most important interven-
tion came from the Honorable Vincent Carollo, who had been seated in an
armchair in the las1row and who had been loudly called to express his thoughts.
Rather, more precisely - as Colombo, one of the secretaries of the Chaniber of
Labour clearly told him to "confirm" several of his declaralions from the time
when he was President of the Region which have been afterwards denied by the
oarties concerned with the solution of the ELSI oroblem. Colombo was referrine
Io ;inolicr.of laai 0;iobcr whcn C'oroll~)nd ~~iimpetr.nmi iniriers oi'thc ?idlion31
Go%crnmcnth;td gi\.en :ii:ittiincJ ihc .igrccnicn<inilic rcli,ilihc Gu.id4yn:i
factory on the pari of IRI.
Last night Carollo confirmed the news, inserting a clamorous element in the
polemics of these days. He said: "There is an agreement: precise, written, and
signed." It foresaw the relief of ELSI by IR1 in the same financial terms that
were considered when the formation of a mixed society - IRI-IMI-Region was
delineated.
The agreement, as Carollo explained las1night, foresaw the acquisition of the
factory by IR1 for the sum of four billion. Il was quite agreed upon that IR1
would des~rt the first auction oresentine itself instead at the second. whic:hhad.
precisely, as a base-sum four billion. <egarding the problem of thé supplies ii
wasinstead decided that they would besold out in successivephases. The proceeds DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 321
The sum gathered for the ELSl workers' Easter amounts to approximately 3.5
million. It willhe used to fom a "resistance fund". From these sums, the workers
will draw for a coming trip to Rome. Purpose: a new protest against IRI.
111-23.PHOTOCRAP HFIRI-STET SEN
[Not reproducedl
III-23A. PRESSANNOUNCEME ONFTTAKEOVE BRY ELTEL, 17APRIL1969
[Iralian texr and Englirhtranslationnorreproducedl
[Italian rext no1reproducedf;or anoiherEnglishIrarrslatiotfsee1,Mernorialof
the UnitedStates,Annex601
Legal Office,
Bisconti
Rome. . .
Milan . . .
MINUTES OF CREDITORS' COMMlTTEE MEETING
On 29 March 1969,a meeting of the Creditors' Committee took place at the
premises of the Raytheon-ELSI facility al Via Villagrazia 79 in Palemio. The
Committee consisted of the following gentlemen:
Dr. Bruno Lipari,Director of the B.N.L., Palermo- Chairman;
Dr. Ing. Silvio Lauri- member;
Mr. Giovan Battista Riccobono - member;
Mr. Antonio Miserendino - member;
Att'y Giuseppe Bisconti- niember;
Also present was the Liquidator, Att'y Giuseppe Siracusa.
The Liquidator advised the Committee of the results of the negotiations with
representatives ofEltel for the leasing of the facility and pointed out these
essentials:
Price L.150,000,000per year. Duration 18months with premature and immedi-
ate termination in the case of a judicial sale. Regular maintenance and commis-322 ELETTRONICA SICULA
sioning at the expense of the lessee.Possibility io bring in new equipment for
new types of work. Resioration of the facility in the samecondition in which the
lesseelook ilover.
The Liquidator also advised that a third attempt will have to bc made al the
auctioning of the property, and he asked for a vote on a price reduction.for the
raw materials.
On the first item, the Creditors' Committee did not vote in unanimity.
Att'y Bisconti voted against the leasesince ils only effect would be to favor
one privatc party and 10make il essentially impossible 10seIl the facility to any
third oariv other than Eltel: the rent is considerablv less than the deoreciation
of the'cq&pnicnt uhrn ujcd. and dcspite an) preci;iions b) thc ~iqu;dïi<ir the
le.isc uuuld nccssinril! ini<ili,e acsch! tliclIO Ra)thson Conip.iny's inJusiri.il
scsrçis fori~hoseviolaiion K:isthcon Conip;in, sould hold ihc I.iquidxiiir cqually
responsiblc. He added that under these circumstances a decision on the part of
the bankruptcy administrators to grant a leaseto Eltel would constitute a depar-
ture from their very charter which is to safeguard the interests of the creditors
and noi to favour orivate oarties. The other four members voted in favor of the
Icasc of ihr idcilit): i3r pcrio~ oi bstbicen six monthj and s maximum <if one
)c3r protidcd thai EIicI purr.hasc>ai the sÿnic timc al1the rnu niaterinl. men-
ioried. 31 3prlce of no1 Irs than L I S billion 'l'hcy nrc also ~rcvared to rcducc
the correspooding rental Teeeven though the amouni allowed ior already appears
to fall short of economic considerations.
On the second item, Attorney Bisconti voted against a reduction of ihe pnce
of the raw materials based on the inventorv reoort. maintainina that the once
first c<inridcrcd is exccssiv~I~lou as IIis lie p;>intid oui that rhe ksi uiy IO
srll thc materid undrr Favoriahlecondition> wns thït originiilly iniendcd for ihc
liauidïtion of Raviheon-ELSI namcI\,. the scp;irais sale of each indiridual pro-
djclion line togecher with the appert;ining ra;v materials.
The orher members voted in favor of a sale of the raw materials at a reduced
price not below L.1.8 billion, al1in one lot at the time the facility is sold. This
solution of a sale in one block was opposed by Mr. Riccobono.
Rcad. .ippro\sd and jigned: H lipari: Giujcppc Hisconii. Anionio liserendino.
Gio\ln Hnttistï Riccobono; Sil\io Ldurin .
The Liquidator Giuseppe Siracusa.
This is a truc copy of the original: The Clerk (sig. illegible). Palermo, 5 June
1970.
[lrolian re.71nor reproducedf;or anorherEnglishtranslationsee 1,Mernorial of
rhe UnitedSlares,Anne.7621
(TRAWSLATION OF BRIEF TO THE JUDGE IN PALERMO)
CIVILANDCRIMINALTRIBUNAL OF PALERMO
To the Honourable Judge in Charge (Giudice Delegato) of the Bankruptcy of
Raytheon-ELSI S.P.A. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 323
Your Honour.
As you know at the meeiing of 29 March 1969,the Creditors' Cornmittee in
the bankruptcy of Raytheon-ELSI S.P.A. was called upon to expressils opinion
in relation to the proposcd lease ofELSl's plant and pertinent equipmeni io Eltel
S.0.A.. an affiliateof Siemens(IR1 Grouol. r,
The reosons underlying my unfavourable opinion are expressed in the minutes
of said meeting in a summarv wav as reauired hv the needs of concise niinutes.
I helieve iliii)'dui) to clarifi hrr& in ircaier &[;xi1the rcaions oi m! dissent
For such purpov. ili$nwersiry 10 outlinc in .iaumm:iry way ihç dc\elopmcnt
ofevents of the last months relaiing to the ELSl case. ~.
In the course of summer of 1968ihere look place various negotiations at which
participaied also the Curaior, Avv.Giuseppe Siracusa, Senator Caron in represen-
talion of the ltalian Government. representatives of privaie companies interested
in taking ovcr in one form or another ELSl's plant, representatives of IRI, [MI
and ESPI.
Said negotiations, in spite of the difficultiesthat wereencountered, wcreprepar-
in~ a g-obal soliition to the prohlcm of ELSI, which taking into accaunt the
serious social problem repreienicd hy the unemployment if approximately a
thousand persons at the samc tinie protected the interest of the credilors. Said
negotiations. and in particular the negoiiations with a French group, were
abruptly discontinued by the Italian Government after a meeiing which took
place in Rome on 13November 1968.following whicha press release was issued
[hy the Iialian Government] of which 1am attaching hereto a photostatic copy,
indicating the decision of the ltalian Government to cause IRI-STET io iniervene
in order ro take over the plÿnt of ELSI.
Said decision was received as a triumph in the Sicilian politicalenvironment,
it was greeted benevolently by the workers of ELSl to such an cxtent that the
Rayihcon-ELSI name was taken off the facade of the plant and was replace*
with the words IRI-STET which until today, as far as 1 know, are still on the
façade of the plani at Guadagna [location of ELSl plant in Palcrmo].
STET, which had been designaied by the ltalian Government for such opera-
lion, has formed iogether with Siemens [a suhsidiary of STET] an affiliate in
Palcrmo under the name of Eltel S.P.A. The purpose of Eltcl S.D.A.was that of
participating at the auction for the Purchase of the plant and inventory of ELSI.
In order to facilitate this transaction, ahove al1taking into account the time
necessarv for comnletion of the auction sale and the foÏlowine formalilies. the
redito o ~rm miitee expresseda favourableopinion at ilsmeetingof 3~ecehher
1968 inrelation to the temnorary opcration of the magneirons line in order also
to enable Eltel, or siemens for ii, io participate in thesupply of magnetrons to
Naio, in such a way retaining for ELSl a customer of absolutely primary impor-
tance. From the standpoint of the creditors, the temporary operation of the line
appeared beneficialin so far as ilwould have kept high the value of the plant
retaining a customer of such importance. The express condition of the temporary
operation was the purchase of the plani hy Eltel. Raytheon Company, owner of
the proprietary rights necessary for the manufacture of said magnetronr, main-
tained a benevolent attitude with the view of favouring a ioial solution of the
ELSl problem.
All ihis notwithstanding. al least until the date of the last meeting of the
Crcditors' Committee and. judging from the Sicilian pressuntil today, there has
been no declaration nor any proposal coming from Eliel or the IR1 group
addressed lo the bankruptcy officiais, relaiing to the piirchase of the plant.326 ELETTRONICA SICULA
are those estahlished hv law or instead thcreof the meetinas of-national and
rcgion;ilpoliiical auihorities. union leadcri. rcprescniliiii,csof IR1o11safiliaic\,
cic. and as to wheiher instc;id (if a public îuciion wiih al1the subsianti\t, and
formal au;lr;inteec of Iau iherc \hall iakc r>lacca dis~osal on a "tire-sale" hîsis
achieved throueh orivate neeotiations. .
Your ~ono;, i would benaive and not honest if 1concealed the difficulties
of the situation and above al1if 1concealed the difficultiesof the task which the
Curator, Avv. Giuseppe Siracusa, has so ahly performcd and 1 wish here to
express my ahsolute estcem of said gentleman. However, in the presence of a
series of acts of political interference and of acts of government which have
caused this situation, 1helievethat the officialorgdns of the bankruptcy proceed-
ings mus1take a diîierent attitude. It was an act of Government that caused the
insolvency of ELSI, namely, the illegal requisition ordered by the Mayor of
Palermo in his capaciiy as an officialof the ltalian Government, which was not
revoked hv the Prefect of Palermo. who had the dutv and the nower to so do
notwithst&ding the requests received; it was an ait of ~ovérnment which.
notwithstanding any false appearance of respect of legal procedures, practically
has made and makes it impossible for a private g~up to participate in the
purchase of the ELSl plant, namely, the decision hy the ltalian Government,
amply publicized, 10cause IR1 to intervene in order to take over the ELSI plant.
It was also an act of Government, which is about to be formally completed,
which has attemoted to senarate the interest of the workers in so far as creditors
froni ihc intcrcsitii thc reni;iining creditors in main1;iininga high \alue ior ihs
ELSl pl;ini. n;imrl). ihc dccision oiihc Region;il Go\ernmeni of Sicily(allcgcdl)
suggested by memhers of the Rome Government) to guarantee io the wirkers
payment of their termination indemnities, thus separating their lot from that of
the other creditors. Today in substance,Your Honour, the threatening statement
contained in the letler which the former President of the Sicilian Region, the
Honourable Carollo, delivered to the representaiives of ELSl on 20 April 1968,
is proving to be true, namely,
"IR1 shallno1purchase neirhefror a Ioii,norfor a higli price. rhe Region
shallno!purcl~asep ,rivareenterprüesllall norpurchase.LPr me add rhar the
Regionand IR1 and onybodyelse irho has an? possibililyro influencethe
market will refusein rheniosrabsoluremannerroJuvouran)'sale."
In consideration of this situation. notwithstandine the difficulties which one
may al50pcrson~llycncounter. Ibclic\z il 13ihc duiy of ihc Crcdiiori' Coniniiitcc
iciwkc a dirlcrcni aiiiiudc in front of ihc Go\.crnmeni ;ind IR1 u,hich permit.;
an adequate protection of the interests of the crcditors.
In the course of the aforementioned meeting of 29 March 1969,1insisted again
that as an alternative to the sale of the plant together with the inventory, there
should be considered also the sale of separate lincs. My insistence wasdue to the
fact that when Raytheon-ELSI intended to proceed with an orderly liquidation
of ils activities (which wasmade impossible hy the requisition) it did consider as
the best way to realize a high value for the assets the sale of separate lines, each
line comprehensive of inventory, raw material, work in process and finished
oroducts. The reason therefor - and 1 should helieve that few ~eonle in the
korld have an experience equal or higher than chat of the ~a~thesn téchnicians
in this fiel- is that hy sellingseparate lines one is addressing itself to a market
of potential huyers much areater than that ofany huyers which may be interested
in acauirine an entire olant in a ~redetermined localitv ihat cannot he chaneed:
more8ve1, Thesale of separate lines permits the sale of inventory to the us& of
the line and therefore to the party which is in need of the inventory and as a DOCUhIENTS ATTACHED TO THE COUNTER-MEMORIAL 327
consequence thereof at a high price. 1realize that an oNerof separate lineswould
be ~oliticallyan extremely unpopular act and that it might bring about adverse
act;on by the unions such as,.f& exampie, the occupation of théplant. On the
other hand, it seems to be the only alternative to what will otherwise be a
complete depreciation of the assets of ELSI,which willbring about as a necessary
consequence a valuation of the bankruptcy in ils entirety, of the causes and
responsibilities forthe same, which hasno correspondence with the reality because
the bankruptcy and the amount of the liabilities which are not covered through
the realization of the pricc obtained from the assets would be a result not of
normal and natural events in bankruntcv oroceedines but rather of nolitical
impositions and abuses (pardon me for the expressionj which wereapplkd over
and over without interruption [rom the s~rin~ of last year until today.
Your Honour, 1 trust that yoii will understand the reasons underlying my
dissent and why 1 am expressing it outside and beyond my formal participation
in the Creditors' Committee. 1believe 1am compelled to make this clarification
and more complete statement of my position by the dulies imposed on me by
the robe which 1ideally wcar.
(Signed) Avv.Giuseppe BISCOKTI,
Representative of Raythçon
Europe International Company
in the Creditors' Committee.
[Irolian ie'ir norreproduced;/orrheEnglishrranslririosee 1,Mernorialcfihe
UniredBures.Annex61j
[Iralian 1e.unorreproduced;forihe Englishrronsloiionsee 1.Mernoriali>frhe
UnireclSrores.Aiinex631
[Iralian test norreproducedf;or rheEnglishtranslariunsee1.Mernorial ofrhe
Unire'lSrores,Annex641[Iralian rexrInorreproduced :or anotherEnglishtranslarionsee 1. Mernorialofthe
UnitedStores.Anne.r 651
On 2 May 1969, at the former Raytheon-ELSI S.P.A. of Via Villagrazi 79,
Palermo, a meeting washeld hy the Creditors' Committee comprising Mr. Ricco-
hono G. Bottute, Dr. Bruno Lipori, Ing. Silvio Laurin. Attorney Egidio Rinoldi
sitting in for Attorney Giuseppe Bisconti per attached power of attorney, and
Mr. Antonino Miserendino.
The liquidator attorney Giuseppe Siracusa informs the committee that in the
production lines of the plant, material in various stages of completion was left
and has been there since the shut-down of the operation in March of 1968.This
material has been inventoried and aooraised at the toial valueof L.217.300.000.
In the lease agreeement the liq;iéator ohligated himself to remove the said
matenal from the production lines and to have it stored in the warehouse. How-
ever, the removal was no1possiblewithout certain lossesand expenses.The liqui-
dator indicaies that the ahove material valued ai L.217,300,000does not include
hardware owned hy miliiary authorities which was inventoried and appraised
separately al L.24,000,000. For the non-military maierial inventoried hy Ing.
D. Benedetto at L.217.300.000. Eltel has offered an as-is ourchase once of
L.105,000,000.The liquida& invites the commiitee to exPres: their opinion re-
garding the purchase by Eltel.Attorney Rinaldi declaresthat beforethe committee
votes in thëoossihle saleit isnecessarvto make sure that the material in auestion
is no1 suhjec; to miliiary secrecy req;irements, i.e., classified. Attorney i in al di
expresses hisopposition to the sale in viewof the aforesaid and of the following:
At least in the case of some items, the material is in various stages of completion
and continuation of the oroduction orocess constitutes. or mieht constitute. viola-
tion oCinJu,tri;il knou-how or pat;ni rights rxclusi%ciyprofiiciary it>ihird par-
tics EIicIwhich is no! s CO-ownerof the hankrupi company. has no righi i~ u\e
ihe Iiccncesand knou-how of ElSl Alra. the olfer hy Eltel*.ai made in contra-
diciion IO ihr provisions esiablishcd hy ihc Couri whichauihi>rircdihc leÿsç.and
the leasciisclrmighi ihercforc he re\okcd. Conscqucnily. Eliel'sapplicaiion reprc.
sents an improper interference with current couÏt proceedings. The price offëred
hv Eltel is ridiculouslv low.beine considerahlv below the alreadv undernriced
%ÿlueesiablishcd in ihf invcnior!.kascd on inf&nïiion requcsicd ?rom~cmic<)n-
ductors S.pA California. ATECC, and F.leitroi~I\ula S P.A. in respsl oi ihc
possible acquisition of the discharge-lamp and kinescope lines, with ihe appro-
priate materials, the said lines would bring a price corresponding to the appraisal
made, and il is thereforc difficultto seehow Eltel can propose to pay lessthan 50
percent of the appraised value.
The offer hy Eliel proves, also in respect ofthe price question, what has been
stated by Raytheon Europe International Co. in their memorandum to the Court
dated 8 April 1969,and in the cornplaint submitted to the Court on 10 April
1969,namely, that by virtue of the lease hy Eltel that company can dictate the
terms of the purchase of the material of interesi to them, making it practically
impossible 10seIlthe items at a reasonable price. On 3 May 1969an auction was
scheduled for the sale of the entire ELSl operation in one hlock. The sale was
authorized with a formal provision stioulatine the terms and conditions.
IiissII the more surpricing ihai, conirar! ïo normal praciice and Io ihr ahove-
meniioncd conditions of sale. the application by Elicl could be iahcn inio son-
~idcraiioncien b, the crcdiiors'comniiticc berore ihc auciion uas hcldand kfdre
a definiteauthor~zaiionwasgivenfor the separate saleof the material in question. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 329
The application itself demonstrates that Eltel ooerates on the basis of a well
though;-out plan uhich 1s in cssenccgearerltu dmaxiniuni dei.~luati<>onf E1.SI.s
husiness from uhich Eltsl alone uould bcnetit. IIis thercfors dilticult to under.
stand why despite the resolution and the procedure regarding the sale of the
operation. one considers the Eltel request prior to the public auction when such
an offer by Eltel can be of advantage to no one but Eltel while it means 3 clear
lossfor us. It isthe leasearrangement with Eltel which makes it in fact impossible
to seIl the facility to anyone other than Eltel (or companies of the IR1 group),
which contributes to the devaluation of the ELSl operation and thus results in a
direct losson the part of the creditors'ne. s^-trencecomplerelyillegible).
In voting against the Eltel proposal, Attorney Rinoldi confirms what u,as the
suhiect of the memorandum of 8 A~ril 1969and the tenor of the cornulaint of 10
~$1 1969iuhmittsd b) ~3)theon'Euro~e Intern~tion~lCo. in conkçtii>n ivith
the propos~land the probision for authori7ing the leas~ngofthe plant to tltcl
The Eltcl proposal on which the creditors' ~.,>mmitteew;!sto \oie i,mrdnt to
play a role in a Seriesof governmental measureswhich, eversince Spnng of last
year, have in fact been essentiallyaimed at a confiscation.
Attorney Rinoldi . . (illegible. . to Attorney Bisconti of Raytheon Europe
Int. Co. The other four members of the creditors' committee, considering the
diiïiculty of selling the material without also disposing of the tools and the fact
that this reduces the value of the materials sold separately from the facility itself
to a minimum, and also considering the fact that the material has been sitting in
the production arca for a long time, also that, according to Dr. Sanloro, no offer
was receivedfrom anyone elseby the Clerk'sofficeof the Court of Palerm<i,as of
1.45p.m., for participation in the auction scheduled for 3 p.m. - the dcadline
having been 1p.m. - vote in favour of the sale of the material for the price of
L.105,000,000.
Signed: Lipari, Egidio Rinoldi. Ing. Laurin, Riccobono G. Battista,
Antonino Miserendino.
The Liquidator,
(Signed) Att. G'peSIRACUSA.
BANKRUPTCY RECEtVERFOR SOCIETÀRAYTHEON ELSI.,S.P.A..90125PALERMO,
VIAVlLLACRAZlA 79
(Registered mail) Palermo, 26April 1969.
Mr. G. B.Riccobono Raytheon Company
Paleno (fulladdress in orig.) Attn: Att'y G. Bisconti
Rome
Mr. Antonino Miserendino Banca Nazionale del Lavoro
Palermo Palermo Office.
Mr. SilvioLaurin
Palermo.
The creditors' committeewill meet on Fnday, 2 May 1969, 12.00noon. at the
above address, Via VillagraziaNo. 79, to discussand vote on the followingissue:330 ELETTRONICA SICULA
Purchase by EL.TEL. of al1the matenal currently in the production area, at
the price of L.105,000,000.The said material was inventoried and appraised at
L.217,000,000.Not included in the salewbelmaterials subject to militdryclassi-
fication and currently in the appropriate production area, valued at about
L.24,000,000.
The Liquidator,
(SignedjAtt'y GiuseppeSlnAcus~
[Iralian rexrno1reproduced:forihe Englishiranslarion1.Memorial of rhe
UniredSlares,Annex691
111-31.NEWSPAPE CRLIPPING SE UNATTENDE AUCTIONS
[Ilalion rexrand Englishiranslalionno1reproduced]
111-32.ELTEL VALUATIO OF ELSI'SASSETS
[Itolion re.rrnorreproduced]
TheHon. JudgepresidingoveriheBankrupicyCareof RayiheonELSI Sp.A
hythe Sosirtà Italiÿn T~lccomuni~~~ioiiemensSPA. rclati\e to the rcal value
of the te~hnicalii\rct, of the former Ra)thcon.ELSl Compan)
Premise:ELTEL-Elettronica Telecomunicazioni S.p.A., member of the IRI-
STETgroup and potential buyer of the plant and equipment of the former Ray-
theon-ELSI facili-y disagrees with the appraisal made some lime ago by the
expert appointed by the president of the bankruptcy section of the Court of
Palermo, and with othersmade earlier for a transfer of ownership of the aforesaid
property. These appraisals have in common that they do no1 reflect the true,
provable condition of the facility. DOCUMENTS ATTACHED 70 THE COUNTER-MEMORIAL 331
To illustrate, by way of assumption. the principal motives for the appraisals
which diverge so drastically from that which ELTEL insists on arriving at. the
following comments are presented, concentrating essentially on three points of
argumentation:
(1)Statement ofappruisul- made on behalf of Società ltaliana Telecomunicaz-
ioni Siemens(majority shareholders in ELTEL) - of the items concerned ;andof
thecriteria applied (Chap. 1);
(2) Reconstruction (on 31 Marcli 1969)of the book voltdeof the above-men-
tioned technical assets.startine witli the las1balance sheet of 30 Seo. 1967of the
bankrupt ~a~theon-~~~l o.r ran appropriate recalculation (chai. II);
(3) Comparison between these two levelsof valuation and thejur(iciulappraisa1,
showing as cases in point the estimated figures for a number of items which
constitute the most obvious examples of discrepancies between the conclusions
made bv the exDertand those which are closer to reali.. (Ch.o. II.).
The ?ollowing pages will suitably illustrate and amplify these basic points.
However, a few general preliminary considerationsmay be in order, with pürticu-
lar regard to the basic assumptions which prompted a more correct appraisal of
the property in question as is obviousfrom the results of the reconstruction of the
accountinr records.
It is also underlined that, in both approaches taken in the estimates mentioncd
above, reference was made exclusivelyto the theoretical property value wtiile, as
would seem to be common business practice, the appraisal of an enterprise (or
any segment thereof) should always followthese two guidelines:
- The static or passive value, meaning an appraisal by the so-called analytical
method intended to determine the value, at any given point, ofall the indivi-
dual property items;
- The dynamic or economic value, meaning an appraisal by the so-called global
method intended to determine the value of the enterprise as a function of its
capability to produce income based on ils actual past performance and. more
so, on ils future profit potential.
It is current practice to take a mean value between the property estimate and
the profit estimate so as to correct for any possible excess values which could
result from the application of only one appraisal method.
In the case here at band, the global method was not applied, since the largely
red-ink resultsof past operation, the current state of bankruptcy of the enterprise,
and the current absence of any prospect for distributable profits of the business in
ils present form would have led Io the conclusion that this Palermo facilityhas a
negorive value.
In fact, this facilityo1 only fails to constitute a real and actual source of
income but, as is shown by the aiialytical appraisal of the individual property
items, this industrial firm- in its present highly precarious state and bcing in
need of technical updating - has indeed deteriorated to a point where substantial
expenses and new investments will soon be required Io bring Cheorganiz;itional
and production system back to the necessaryminimum level,and also to compen-
sate for the rapid obsolescence of the technical equipment inherent in this sector
of the industry.
The constant need for capital (a third aspect under which the enterprise as a
potential source of income is to be assessed)for new major technical investments
in the future constitutes yet another reason for a downward adjustment of the
estimated value. Choprer1.Approisol hy SocieràltolionoTe1econ1unica;ioS niiemens
For appraising the technicalassets, the followingmaximalcriteria wereapplied:
Firsr,the current valuewas considered, strictly on basis of market valueDeritems
without taking into account any prospective profitsas referred to above'which in
this case would come out negative anyway. Current value refers to the current
cost of purchase or new construction minus a deduction for normal wear and
lear.
Second, consideration is given to whether the individual itemsare designed for
"general" or for "specialized" use.
The items appraised (.xcep. for a fewparts eliminated because thev are useless
for future woik oroerams - see o. 342...fra) were most eenerouilv taken as
functionally integ'ratid into an operating business enterprise, but the'valuations
would come out different, and lower, ifthe equ~.ment and machinery were con-
sidered and soldas separate. individual items.
With al1this taken into account, the appraisal hy SIT Siemens,hroken down in
more detail further below, indicate the followingfigures:
A. Landand buildings
A. 1.Land L.360,750,000
A. 2. Building L.398,300,000 L.759,050,000
B. Equipmenr.machinesandrools
(seedetailed breakdown)
A. LandandBuildings
A. 1.Land
The terrain on which the factory is located has an area of about 48,100square
metres, situated on the eastern perimeter of the city between Via Villagrazia and
the deep valley through which runs the Oreto river. The terrain declines toward
the river, with a total drop of about 4 metres. The only access to the facility is
from Via Villaerazia. a narrow and roueh road which wouldnot oermit two-wav
trafficby large;ehicl'es except in a feww;dened spots.
The entire area of the plot can be subdivided as follows:
1. Area covered by buildings about 17,050sq.m.
2. Roofed area (sheds) about 1,450sq.m.
3. Factory roadways and
courtyards about 10,000sq.m.
4. Parking lots and other paved
space about 18,600sq.m.
5. Steep, unused grades about 1,000sq.m.
Total 48,100sq.m.
The property has an inclining peripheral zone which is occupied by simple
dwellings,and, in between.cultivated fieldsand lemon orchards.
The zoning plan of the Palermo Community provides for this area a "clean-
industry helt" which, however, does not cover al1of the land parcels making up
the former Raytheon-ELSI complex.
Considering the type of zoning, and on the basis of local comparisons, a price
of L.10,000/sq.m. for small lots can be considered reasonable which includes
the cos1 of surveying and the construction of the infrastructure worth about
L.2,500/sq.m. For the complete plot of about 48,100 sq.m.. a price of L.7,500 DOCUMENTSATTACHED TO THE COUNTER-MEMORIAL 333
per sq.m. can therefore be considered equitable which would thus come to
L.360.750,000 for the entire area.
A.2. Buildings L.398,300.000
The industrial facility was constructed in increments between 1957and 1963.
As a result, the buildings are of difîcrcnt types of constructionand show a lack of
organic development and interrelation. The upshot is an array of buildings of
extremely diverging styles, with irrationally distributed and, consequently, inade-
quately functional space.The height of the buildings varies from a minimum of
2.20 metres to a maximum of over 7 metres. The buildings were a~~arentlv
constructed in a generally sloppy manner. The framing shows no visil;& crack;
with the exception of one junction beam, while widespread damage is evident at
the welds betweenmasonry and the reinforced-concrele structure. Thesedamages
could in part be the result of scismic tremors. The roofing of the buildings consists
of asphalt material which shows widespread water seepagedue to age iind to
mechanicalruptures. Thc extension ioints and Rashin-sbetweenthe various build-
ing seclion, wcrc pouri) crecutïd 2nd invite cqd31)) \\'31ç1secp;ipr xlm,lst ciCr!-
whcrc S,i~.hualcr lesk, thrudgh the roof and pruhsbl) poor \iiirkm.iiizhip hdvc
~JUSL<pJI:~stcrIo comc utTcçpcciall~ <inthe cciling The oicrall p1aiir.r i\.<15in
ha4 con<lition. Most of the fli~i>r*.iic ufdsphali. cemcnt slab,. anclrcJ s3iidstonc
With ï feu c\ccptioiii.the, arc in bdd rhap',. Thc r:indstonc ir cr~iktd in nians
placesdown to ihe subsurface. Wiiidows and doors are few and small, and gei-
erally of poor quality and workmanship. The paint is largely in need of rcnova-
tion. The sanitarv facilities are ~redominantlv located in unventilated areas.and
the incîhaniilil \~cntilation proLideci is in;idcquaiïThc sanitar) lixluri:~ ~nd
plumbinp Jre in\utlicient and by now in ,ad condition.
The cafeteria is eouiooed with inddeauate and worn-out furniture and ils hvei-
enic condition is le; thin good. In gcncral, the many deficiencies of the fac;lzy
are accentuated by the long time of inactivity.
The following examples further iinderline a few aspectsof the buildings which
fall short of meeting the standards for safety and sanitary working conditions
established by the law, and which require quick remedial action and considerable
outlays prior Io resumption of work:
1. workshop sections located in insufficiently high and poorly ventilated
rooms;
2. absenceof a sprinkler system;
3. basement rooms usedfor the storage of cardboard boxes and other flam-
mable material;
4. boilers as well as electric generator equipment installed in narrow and
scarcely ventilated rooms:
5. workshops with doors too small in relation to the number ofpeople;
6. sanilary facilities in prccariciuscondition, etc.
For a valualion of the buildings the method adopted has bcen to divide the
areasinto five caleeories. in consideration of the characteristicsand the deereeof
- -
sophistication of the areas concerned, their range of possible utilization and the
adequacy of furnishings and equipment, as shown below (seeattached lavouts,
1. rooms with low ceilings, with coarse ("rustic") finish, little or no ventila-
tion,usable only for housing equipment or for the storage of low-value
materials: 2. rooms with high ceilings(about 7 metres), with "semirustic" finishno1
airconditioned nor heated, designed for storage use or heavy shop work
not requiring any particular "clean-room" conditions or climate control;
3. rooms sirnilar to those described under 2 above but with a ceiling height
of about 4 metres;
4. rooms with fullyfinishedwallsand ceilingsusableeither for delicate work
or as factory officesand equipped with air conditioning;
5. rooms fullyfinished,speciallydesigned for officeuse, and air conditioned.
For each type of work space the construction cost is indicated below, derived
from comparisons with other, similar structures. The valuation is made by redu-
cing the current cos1of construction by 30percent in consideration of the age of
the buildings (about 7 years), and by another 20 percent (except for the rooms
under item 4 for which only 10percent is deducted) in consideration of the poor
workmanship and of the reduced functionality resulting from the irrational space
planning.
Room Area Const. cost Total constr. Valuation appraisal
Type sq.m. L./sq.m. cost, L. % Total net
1 4.730 15.000 70.950.000 50 35.475.000
2 5;520 22;000 121~440;000 50 60:720;000
3 7,190 20,000 143,800,000 50 71,900,000
4 9,160 30,000 274,800,000 60 164,880,000
5 830 60,000 49,800,000 50 24,900,000
Total 27,430 660,790,000 357,875,000
The supportive facilities which constituie an integral part of the plant are ap-
praised as follows:
1. Sheds of metal construction, glazed, with fibre-cement or fibreglass
roofing,cernent floors
2,290sq.m. al L.6.000 L.13.380,OOO
2. Roadways, walks and courtyards, with crushed-rock subsurface, hot-
topped
I0,WOsq.m. at L.1,500 L.15,000,000
3. Levelledand surfaced(unpaved) areas for parking lois and yard space
18,600sq.rn.al L.500 L.9,300,000
4. Single-floorbuildingfor the storage of alcohol and distillation equipment
IIOsq.m. at L.25,000 L.2,750,000
Total L.40,430,000
The resulting total appraisal of the buildingsthus cornesto L.398,300,000.
B. Industrialequipment,machinesand tools
It should be stated at this point that the equipment and tools of the Complex-
OST-RAX section and of the semiconductor group cannot be,counted as part of
the property considered since they have for some lime been uselesseconornically;
they are excluded from our appraisal and remain at the disposal of the liquidator
for possible sale elsewhere.336 ELETTRONICA SICULA
(B5) MET - Tools Section (equipment and tools for electronic microwave
tools) L.12,000,000.
These are equipments and tools whose working condition can be judged
only in actual operation. In viewthereof, after verification oftheir . .sical
coidition, a estimate was made.
(86) SCA Section (low voltage telephone conductors) L.7,500,000.
Thi, 1s icchnic.ill) obsolctc cquipiiicni iiir \hich the as,umcd nidrkci
i,:iliic,hould 1iavshccn idken. Houc\cr, in i,icu of the tic! th:ii ior ceri.iin
pr<iiluirii~n;iciiviiic~.SIP could si1use sush eriuinmcni. ihc appraicdl a..i\
. .
based on operating condition.
(B7) LAMP Section (light bulbs) L.6,605,000.
A physical examination was made of the individual equipment items.
These items were used for production work already abandoned prior to
the shutdown, and the appraisal was therefore hased on assumed market
value.
(B8) TRC Section (cathode ray tubes) L.333,630,000.
The equipment had been purchased in 1959/1960from Selit S.p.A., from
Thomas Electronic and, to a lesserextent, from other specializedAmerican
suppliers. The testing equipment, however, had been acquired second-hand
from Ravtheon USA. The reactivation and the technoloeical uodatine of .~ ~
the cqiiipnicnt iiilrcquirc In o\erlll in\ciiiiicnt of the u;dcr ,,~'I..?UU-?W
niillion An anal!\is u.ii mxdc .ind ilic.ipprdis.il hdscJ iin iipraiing ioiidi-
iion. undcr JcJuciii,n ,~ithe cor1 iiist~ll~ii~iniL.50hl1 ;inil of thc I.tiiiin:i-
tion equipment (L.22 M) taken down some'time ago and now largely
irretrievable. The conveyor system was appraised at the assumed market
value.
(B9) Comhined Inventa- Section (electronic microwavc tube and control
equipment) L.43,000,000.
Ench indi\iJiial iism rias e~amincd '1hc insirunizni* \!hich .ire uniicr-
~JII!.US:I~Ifor tcsting and cimirol .indd (cwicsi <ncnsin rc.iwnxhle ,h.ipc
usrc :ipprîiscJ <in the hd\i.: af ihcir oiicraiinr! conJiri<~n.Ihc ~hcmical
equipmint and other instruments were'largely-found to be in a state of
deterioration and wereappraised at the assumed market value.
(BI01 SIM Secrion (Equipment serviceand maintenance) L.316,085,000.
(1) The capital equipment and smaller machine tools for maintenance
are largely vintage items and, for reactivation, require considerable invest-
ments for maintenance and reoair bv soe,ia.ized contractors. The laree~ ~ ~o~ ~
equipment consists of heterogéneous types from diverse suppliers. The
electrical toolsjust barely meet minimum standardsand oiïer no auarantee
for continued performance. The array of equipment on hand bëtrays the
absence of an organized plan. In fact, the items seem Lohave been made
available piecemeal wheneverthe need came up. It was also impossible to
check their functional value since the plant was idle. The appraisal was
generallv hased on ooeratine condition.
- 12)The ccntvdlporicr cquipmcni \v.ixppr.ii,ciI on the b~sisoiopcrdting
condition II is strc~rcJ ihdt the rc.icii\:iiion of the cntirc NL,ilit)mu\[ hc
\iericd in IightOC the original si>nJition for the rcrturation ui\i hicIIm2) DOCUMENTS ATTACHI!II TO THE COUNTER-MEMORIAL 337
be necessary to discard somc of the main equipment which would mean
the replacement of a considerable segmentof the central power system.
(BI1) Mücelloneous L.11,946,000.
This sector comprises the most varied items which to examine was only
partly possible. For the equipment of universal utility and for partitions
(of wood, glassand metal) their condition determined the assessment while
for the "sundries" the appraisal was based on assumed market value.
(BI2) X-Secrion L.4.000.000.
Theseare dies,moulds and 1001swiih third parties and thus no1availahle
for a physical examination. The appraisal necessarily had to be done by
way of a lump assessment.
(BI3) LogisricEquipmenr L.22,060,000.
This was appraised on the basis of operating condition. These are tools,
furniture and accessories for offices and for service functions, found to
show signsof long useand to be in bad condition.
Chupvr II.FinunciulReview
The financial reassessment referred to in the Premise above is summarized in
the followingtabulaiion:
#el Vulue Reussessed Value
ELSl After ded. Elimination of
In L.1,000's Statement fiscal recovery unaccepiable
30Sep. 1967 transfer and 20% increase
with amort.
by 31 March
1969
(1) (2) (3)
Land 166,969 166,969 166.969
Buildings 809,142 670.012 670,012
Subtotal A 976.111 836,981 836.981
Equipment and machines 4.181.344 2.146.722 1.788,936
Coating (electrolyt.)booths 42.950 22.910 19.092
Furnaceslburners 262,467 66.130 55,108
Various tools 222.387 34.275 28.562
Furniture+ log.equip't 113.564 43,352 -- 43,352
Subtotal B 4,822,712 2,313,389 1,935,050
Subtotal A + B 5,798,823 3,150,370 2,772,031
Motor vehicles 17,165 6,993 6,993
5,815,988 3,157,363 2,779,024
Total
Re Column1
This shows the values (in L.1.000)of the various property calegories as stated
in the last oficial balance sheet of the bankrupi Raytheon ELSl and referring to
fiscalyear ending 30September 1967.The said halancc sheet showsunder ;issetsa
total of L.7,086,281K in technical property, under liabiliaisinkingldeprecia-
lion fund of L.1,270,29K. thus arriving at a net value ofL.5,815.988K.Re Column 2
For each individual property category the relative values werereconstructed,
eliminatinr first of al1the L.463,597K in "fiscal appreciations" representing ficti-
tious valui increases whichare in no relation to the effectiveproperty value, and
the L.1,239,083K in transfer (under assets and liabilities) made in the last fiscal
year, which transfers relate to a balance in equal amounts in fixed assets and
corresponding depreciations for fullyamortized items.
The deo.eciation allowance as al 30 Sentember 1967 was recalculated under
application, for al1company operations, 2 the straight single rates used during
the years without taking into account accelerated depreciation, whichis important
in the eleclronics business more than elsewhere. Ravtheon ELSl had not written
off any depreciations between I July 1960and 31 ~ecember 1962while in other
fiscalperiods, especially between 15 August 1956 and 30 June 1960, reduced
depreciation rates were applied. The depreciation fund was updated under appli-
cation of the singlestraight depreciation rates for the period 1October 1967to 31
March 1969.
This revision of the accounting records, correct inevery respect,brings the total
net property assessment to L.3.157.363K, differing from the total value per bal-
ance sheet (column 1)by L.2,658,625K. This difference can be broken down as
follows:
L.1,221,889 K for charging straight simple-rate depreciation up to 30 September
1967;
L.973,139K for depreciation, always at simple straight rates, during the period
10October 1969to 31 March 1969;
L.463,597K for appreciation credits unsupported by any real increase in pro-
perty value.
Re Column3
The examination of the accounting records revealed that, with the only excep-
tion ofthe buildings, furniture, utility equipment and motor vehicles,the Company
unjustifiably added to the remaining amortizable items shown under assets at
purchase price (already including duty, transportation and packing) plus instal-
lation cost, an increase in value calculated at 20 per cent covering the assumed
general cos1 of administration (G and A or, in Raytheon ELSl's terminology,
S.G.A.). This allowance under property assets corresponded to an apparently
equivalent reduction in the annual cost of operations. Deducting from the figures
incolumn 2the amount corresponding to this totally arbitrary 20percent increase
in value which is unjustifiable from the administrative point of view, one arrives
at a new value of L.2,779M. Incidentally, it should again be underlined that in
such financial statements no use 1smade of the accelerated depreciation method
(Art. 98, T.U.) which is particularly important, or rather a must, in the type of
business in which ELSI was engaged, in view of the rapid technical obsolescence
of the industrialequipment involved.
The total appraisal thus arrived at in column 3 still does not reflect a correct
financial picture of the technical value of the bankrupt Raytheon ELSl facility.
An extensive analysis was made of the investment during the last year of opera-
tion (1966/1967), with a less detailed examination of the preceding fiscal year
(196511966).It covered the tvDeof and accountinr! for orders for new ea. .ment
uliich u..I;,nir.rcd under w:is and uhich c~nsii~tcd praciicall) rll oi ihs incrc-
meni:il icchiiical.~ir.isduring ihr.mcntioncrl iui, ti!car..Iiaas ihur p<,r,iblc
to ascertain that in determining the figure to enter for incremental propeÏty, one
always tended to use ever higher figures for such annual increments, above and IIOCUMENTS ATTACHIID TO THE COUNTER-MEMORIAL 339
beyond the already unjusiifiahle practice of starting off with a 20 pcr cent over-
valuation (forG and A) of incremcntal equipment and machinerv. The essential
iirnis hroughi oui in ihc xnal!sih oili fcu such ncw-equipnirni ordcrs d~ring the
IOhO1967;,nd IYh5 19668si:il pcriuds arcsiinini;iri~edin ihc atilirhsd siaiciiitni.
section D. More details rclative to the orders analvzed can he submittcd if neces-
sary. The spot examination of the newequipment orders in 196611967has pointed
up, hesides the already mentioned 20 per cent over valuation to covcr G and A,
Glue figures markcd ;p by at lcast 30 per cent. For 196511966,il was dcrnon-
stratcd that nearly al1of the incremcntal figuresexamincd rcRectedallowances for
operating expenses,costs which should have beencharged against thc appropriate
account and whose entry undcr zissctsappears totally unjustified. It was not
possible 10perforrn an analogous audit of the orders in the fiscalycars preccding
the two mentioned since the accounting records available were insufficient. Even
if one takes into accouni the deprcciation raies. mentioncd above, for the period
l October 1967131March 1969.it can be reasonablv stated that ai leasi 15 Der
ceni of the totaitechnical asscts per column 3(land and motor vehiclesexcludéd),
meaning about L.400 M. constitutc the artificial increase in value. Consequently,
a recalc"lation of the asscis of the ha~.ruot2Ravtheon ELSl fac,litvr~rtormed
also in accordancc wiih the provisions of Article 2425c- would lead to a total
valuecertainly not higher (han L.2.400million.
From the total of L.2,772.031K (column 3 further ahove). reprcsenting rcvised
figures(deducting 20 percent for G and A) for the asset balance, we would arrive
at the values shown below ziftcradjusting for the said mark-ups (veluated incor-
rcctly al 15percent):
Nrr vuluc
Vuliteper 15% ((ter
colunin3 Difference deducrinr15%
Land 166.969 - 166.969
Buildings 670.012 100,502 569,510
Equip't.. Mach.,tools 1,935,050 290,256 1.644.794
Total* 2,77?,031 390,758 2,381,273
*This obviously includes the equipment and tools of the Complex, OST, RAX
and Serniconductor divisions.
Chu~>r</v//. Conclusions
A. Contpririsonbern,eentherevisedi,ulueundtheSITSienienr Appruisol
A comparison between the updaied, revised values (withthe above 15percent
deductcd) and the esiimate made by SIT Siemens(Chap. 1)is made as follows:
Valueper
coluni~3i SlT Siemens
In L.1.000 nti~tu15% appruisul Dt%ference
Land 166,969 361,000 + 194,031
Buildings 569,510 398,000 - 171,510
Equip't., mach., 1001s 1,644.794 1,027,100 -617,694
Total 2,381,273 1,786,100 -595,173 The following summarizes a few major considerations and reasons for the
diference between SIT Siemens'appraisal and the revised values shown above
which, forequipment and machinery, aredenved from the factors set forth below:
(Al) Lond
A comparison beiween the values Deraccountine records and the values esti-
mated in ihe apprisal uas consideredP<~iniles\in rycwof ihc coniinuou$ incrcrw
in ihc price of industrial land during the pas1dc~.adc.Rclcrfncc is thereli~rcmïdc
io the criteria outlincd in Chapicr II, pardpraph AI ("land").
(A2) Buildings
The book values cannot give a realistic reflection of the actual value of the
buildings when one considers that the applied fiscal depreciation rates do noi
correspond to the actual physical depreciation of the items concerned, the condi-
tion in which these buildings are, being truly precarious (seeChap. 1, para. A2);
also, when one considers that the physical arrangement and the typc of construc-
tion, ill-conceivedand antiquated, nowmakes these buildings relativelyunsuitable
for the implementation of modern production techniques espccially in an area as
much in the vanguard of technology as electronics.
The valuation of the buildings made in the officialorjudicial survey appears to
be quite far removed from the realities of business, in that the total value attrib-
uled to the buildings proper is more ihan twice that established in the above
review of the accounting records and even more than one-third higher ihan the
orieinal ourchase/construction orice. It seems unreasonable therefore. to a.n~v ~rr,
10ihis ikm the rates per squaie metre or cubic metre arrived at in the judicial
appraisal since these would constitute valuation rates corresponding 10the con-
struction cos1of new,modern industrial buildings Farsuperio;to those inquestion
whose stateof serious decay isobvious to anyonc.
(A3) Equipmml.MochineryundMiscelluneoesTools
The diferences beiween SIT Siemens' appraisal and the values pcr review of
the accounting records are shown in the attached tabulation. section E.
Beforeexaminingthe more significant differencesone must remember that (as
already said further above) the relative value of the items in the Comnlex-OST-
RAX-~emiconducior scciinn and of ihnsc in Ronic and Milan (ai <i ioial of
1.439.b8K J) mu\l hc deducicd from ihc ioial difkrcnie. \ince Eltel clnnot in
an? uay hc inicrcaicd in taking okcr thcse itcms uhich arc Icfifor disaosdl b\ ihc
liquidator who can seIlthem directlv.
For ihc equipnieni lllicl can iakc.ii\cr, ihc diiTerencc1sthui rcrluccd(a>.houn
in ihe iahulntion. se:ii<>nEl 10 ;ihoui 1. 177niillion. al1<iiu,hichis aitribuiablc Io
kinc\c<ipr (piciurï iuhcrj In thal Ialt~r3cci0r III> no,s~blc.houcvcr. i<idcntil\
a oaitern of sienificant diiïerences which are shown in the at~ ~ ~ ~schedulé.
section F. The Criteriaapplied bySIT Siemensforthe valuation ofthe TRC secior
(CRT=cathode ray tubes), alrcady mentioned in Chapter II, paragraph II, are
principallr based on the condition of the items. with reièrencealso Ïo analoeous.
more mojrrn equipmcni çiirrcntl) on the mùrkri. The J~icrgcn:c heiwccn the net
i.:iIùc*pcr accounting rciicu :înd ihc SII Sicnicns \;iI~ùiion. ouilined in ihc
attachrd Iiiing. ihus makcj 11ciidcnt thùi the ordin;ir\,,ir:iiaht-linedenreci~iion
meihod applied to the items in this sector was not s;fficienÏio cover ihe actual
technical and technological obsolescence of the equipment concerned. The
aforegoing considerations relative to the differences between the net values per
accounting reviewand SIT Siemens'appraisal serve to point up. for the items to
be taken over by Eltel, the essential validity of the valuation given in Chapter 1 DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 341
(L.1,786 M) and its strict overall adherenceto the market value of the items 10be
taken over.
B. Observarionson rheJudicialSurvey
Before concluding this reporilseemsnecessaryto make reference oncemore
to thejudicial survey, apart from what hasalready beensaid further above regard-
ing the factory buildings, to point up the perspective from which the judicial
survey wasmade.
In scanning through the appraisal figures for equipment machinery, tools, etc.,
appearing in the said survey, one was able to find a few particularly salient
discrepanciesin terms of both the financial aspectand the methodology applied,
reviewedasfollows:
ltem 03170delay line modulators, SOKV, I2OmA. for magnetrons,
appraisal
Item 03173delay line modulators, 80KV, IZOmA, for magnetrons.
appraisal L.34.0 M
L.70.0M
Thesetwo modulator items were manufactured in-house in 1967;the total cos1
of assemblyaccording to the books was:
item 03170 L.28 M
item 03173 L.26 M L.54.0M
minus amortization which diRers -L.10.8M
from the figure in the survey by
ltem 03555magnetron test modiilator, appraised al
Made in-housc in 1962al a total cost of
Alter deduction of amortization the remaining value
would be
ltem 4133. Heliarc welder. appraised value
Purchasedin 1963for
Alier amortization/depreciatiothe remaining value is
ltem 2631.4-position chute. appraised al
It was found that the previous managementbad already
labelled this equipment asscrap Scrapvalue
Items 0277512776,two furnaces for vacuum treatment,
1800,appraised al L.22.4 M
This is the current purchase of similar equipment. The
furnaceson hand wereinstalled in 1963.Deducting depreci-
ation (L.1 IOM), the remainingmaximum value would be
Items5167to5319:
154 removal carriages with motorized pumps and
"traps", appraisedat
The valuation of a completely equippedcarriage by Ray-
theon ELSl technicians was L.300 K each. for a maximum
total of
ltem 05065,05057,051 II. etc.. conveyors, appraisedat
This would be a cost of L.29.5 Klmetre. The current
purchaseprice of identical equipmcnt, new, is L.15 K/metre.The resulting total is
lncremental cost of installation, appraised at
Considering a cos1of L.5 K/metre (current quotations),
a new installation would be
The total for the conveyor equipment is:
Per appraisal
effectivevalue
variance
Old lamination equipment, appraised ai
11is easily seen that this equipment does no1exist any-
more, except for a fewkilograms of scrap Scrap value
Item 07045,electrolyzer280/D/70C, appraised at L.59.0M
It is out of service,is six years old (bought in 1963)and
cannot be used for danger of explosion. Reconditioning
would cost about L.18-20M involvingmore than a month's
work.
The previous administration already considered this
equipment as uselessand uneconomical io operate and had
it replaced with a smaller unil (07045) found adcquate for
thejob. Its power supply wasusedfor the smallerunit which
put the said larger equipmeni out of commission. 11can be
sold for scrap valueonly Scrapvalue
Items 7791 to 7832, Barbieriairconditioning equipment,
appraised at L.100.0M
Requires repair and maintenance work estimaied al
L.30M.
The current price of a similar system in operating condi-
tion is:
The assessablevalue isthus
Items 07636 and 7637, two lngersoll compressors, ap-
praised at
Found unusable. The old Raytheon ELSl administration
already considered them unserviceable and had them re-
placed withother equipmeni Scrapvalue
Iiem07525.~iceionediçtill~tor..ipprai,cd ai L.I.0M
Thr pretiouç adminisiraiion h3d ilshelted and prohi-
bited 11,u\c hscau.c <iiiidangcrous condition S«ap value
ltems 08861/08864,four Hobart converters,appraised at L.2.0 M
Already taken out of commission by ihe previous admin-
istration and replaced with others with steel tubes of
difieren1diameters. Appraised at L.12M for 3,400 metres,
L.24M for 8,000metres, toial appraisal
Actual current value is about L.l,500/rnetre including in-
stallation,total
Electrical wiring (cables), appraised at L.2,000/metre for
35.000metres
Current value, installed,not morethan L.l,OM)/metret,otal
Lighting,appraised at L.5.000each for 1,800lamps
Actual current unit priceis L.2,500,totalling DOCUMENTS ATTACHBD TO THE COUNTER-MEMORIAL 343
C. ConcludingObservutions
On the basis of the general considerations contained in the introductory part of
this report, it deemed necessary to add a final observation to underscore that
the base price for the auction covering thects of the bankrupt Raytheon ELSI
operation appears to be unrealistic. As said above, the valuation made t)y SIT
Siemen~ ~~ ~~dered the individual items as functionallv inteerated in a eoine
industrial operation. Conscquently this did not take into accolnt that the buildl
ings and equipment were left in a state of abandonment for over a year during
which not even the most elementery preservatory maintenance work was per-
formed. Ordinary maintenance of this type had been negligentand insufficientfor
several vears
No consideration has yet heen given- and this point must be underlined as
particularly importan- to the enormouscos( to be incurred bythe future owners
in cleani-éu.. .oairine. refurbishine and resta-.inr the oroduction facilitvof the
former Raytheon ~~~Ï'com~an~.This regeneration cost will certainly imount
to not lessthan 2-300 million lire,and the iob willtake many months. Needlessto
sav that a oroeram desiened to brine about a eradual economic recoverv of the
~r - -
industrial facility mus1involve either a massive reconversion of the existing pro-
duction alone the line of uudated electronic technolorv. which would reciuirea
substantial r&tructunng of ihe equipment, or the trans%r to Palermo, fron; other
facilities,of new equipment and tools which would createjobs for a few hiindred
unemployed workers
Società ltaliana Telecomunicazioni
SiemensS.P.A.
(Signarure)
111-33.ELTEL ANNOUNCEME OFTOFFER TO BUY AT3.2 BILLIONLIRI:
[Iralian testnorreproduced:fortheEnglishtranslationsee1, Memorialof rhe
UniterlStores,Anner 681
111-34.ELTEL OFFER TO BUY AT 4 BILLIONLIRE
[Iralion resrno1reproducedf;or rheEnglishrrunslationse1,Memorial of the
United Sraies,Anner 701344 ELETTRONICA SICULA
(Ifolian text norreproduced:/or the Englishfranslationsee 1,Mernorialofthe
UnitedStates, Annex 711
[Italian text not reproduced]
CIVIL COURT OF PALERMO
ORDINANCE FOR THE SALE OF THE FACILITY RA,W MATERIALSAND SEMIFINISHED
GMDS OF THE BANKRUPT RAYTHEONELSI S.P.A.
The Court
Having read the request by the liquidator/receiver to proceed with the sale of
the electronics Company Raytheon ELSl S.P.A. of Via Villayrazia in Palermo,
including ihe hdnkrupi ~onip;in)'sproprri! 4s \seIla..II\ r:i\nidterials and rcmi-
iinirhed g~ud* hut e\cludirig maic,r~:ilrI;>rthe productii>nsf retiiic~induii<>r ~,
listed in the inventory sheet;
Having reviewed the technical-survey report of 1I October 1968by Prof. Mario
Puglisi which serves as a reference relevant to the facility, equipment and ma-
chiner~; the inventory statement with attached exhibits which serve as a reference
in respect of the description and valuation of the raw materials and semifinished
goods with the exception stated above;
Having read the technical advice by Prof. Mario Puglisi of 31 May 1969which
disputes the claim that the sale of some of the raw materials and semifinished
goods as operational parts could constitute a violation of industrial secrecy (con-
ventions);
Having reviewed the application presented by ELTEL in which the latter de-
clares bcing prepared to acquire the facility with al1 ils supplies, including the
finishedproducts, for L.4 billion;
~aving considered that il is both reasonable and in the interest of the creditors
to consent to the request by the liquidator/receiver to exclude from the sale the
raw materials, semifinished and finished products related to semiconductor pro-
duction also in viewof the fact that these are finishedproducts and basic materials
of no use to a buyer intending the fabrication of new types of finished goods;
Having considered that the auction arranged for 3 May 1969for the sale of the
facilityand suppliesremained without bidders;
Having considered that the hase price for the sale of the facility may be set at
L.3.2billion and that for the sale of raw materials and semifinishedgoods may be
set as lowas L.800million; and
Ha\ing noted ihc I;ii.or.iblr.opinion oi th<,creditcirs'conimiiicc rcl.ii~\eto th<
s.ile of the i:icilii) togsther \iith the r.iu mitcrial, :inLiscmiii~i~shego<>rl..ind
ihcir uillingiisss to seille liir ihc prId\t\i:itcd.ijexprr.ssej.on cdlic illcgihlc). DOCUMENTS ATTACHED TO THF. COUNTER-MEMORIAL 345
Therefo r ders
To proceed with the sale, by public auction and to the highest bidder, of the
electronics firmRaytheon ELSl S.P.A. located on an area of land about 48,103
square metres in size and accessible from Via Villagrazia No. 79, registered in
deed No. 51345of the Palermo NCT, sheet 72section 203part b, and section 204
part b, sheei 73 sections85,307,225, 226, 230, 233, 231, 234,455, 456, bordering
in ihe north on the Oreto river, in the south on Via Villagrazia, in the east on
Cassina and in the west on Guajana, comprising buildings,equipment, machinery,
various 1001sand implements for production of cathode ray tubes. microwave
tubes, X-ray tubes, conductors, seiniconductors and complex components as de-
scribed in the technical report by Prof. Ing. Mario Puglisi dated II Octoher 1968
which is to be considered repeated and transcribed in full as an integral part of
the record;
To also oroceed with the simultaneous saleof the raw materials and semifinished
giioclson hand at thc P~~.iliiya,nil in gencrdl u.ireliouics in Palerm<i(cicluding
thosc items wh~ct~ are intrndcd for icmisonducior priiduition) which bcloni, to
the said electronics firmand are descnbed in the attached inventory list.
The sale willbe subject to the following limitations:
1. Exclusion of al1items claimed bythird parties as well as raw materials and
semifinishedgoods disposed of by the liquidator or used for maintenance purposes
and therefore not available. Exclusion of al1the raw materials and semifinished
goods intended for semiconducior production. Exclusion of al1items no1 physi-
cally on hand ai the facilityexcept those ai the (Palermo) general warehouse.
2. Prior to the auction, the buyermus1inspeci, or have inspected on its behalf,
the facility with al1ils buildings, machinery, equipment. tools and furnishings as
wellas al1 F~W materials and semilinished goods to ascertain their current condi-
tion. The presentation of a bid will be considered as confirmation thÿt such
inspection has been made so that the successfulbidder cÿnnot under any circum-
stances apply Cora price abatement or indemnification, there king no guarantees
given (seealso Art. 1487,CivilCode).
3. Exclusion of al1 finished goods, including rejects. wherever they inay be
located, of ail motor vehicles, equipment of the Milan and Rome office: goods
consigned and delivered to customers. items furnished to agents against deposits,
and al1materials and 1001sowned by Nato (Administrative Bureau) and located
at the factory.
4. The sale of the facility with land, buildings, equipment, tools and machinery
as well as raw materials and semifinishedgoods will be on an "as-is" basis. with
no responsibility or guarantee on the part of the liquidator in connectii~nwith
direct or indirectees.obligations. liens,or chargcs.
The sale shall bemade in one singlelot subject to the followingconditions:
The auctioning base pnce is four billion lire of which L.3.2 billioncovers the
electronics facility and L.800 millionthe raw materials and semifinishedgoods.
To participaie in the bidding the offerors must first pay the amount of L.350
million as a hid bond plus L.480 millionfor pre-established expenses.Competitive
bidding must be in increments of not less than L.6 million of which L.5 million
bvillgo toward the facilityand L.1million toward supplies.
Thc auction sale is scheduled for 12July 1969at 10a.m. in the public audito-
rium of the third civil department of this Court. presided over by the judge
assigned Io this bankruptcy case.346 ELETTROPIICA SICULA
The hidders musi pny the ahove specilicd bond and cxpcnsc amounis hy Y a m
of ihcda? rchedulcd for the auciion. '11thc Clcrk'.Ollicc (hankrupicy section) ul'
ihis Court. in ihc form ~f ~tï~ ~al lceal deoosit. Wiihin ihiri\ da\s aficr adiudic3-
~-~ . ~ , , ~ ~ ~~~9
tion, the successful bidder must came up with the full hid price by paying the
diiïerence between the said price and the bond deposited. in the same form as
indicated above.
The h2)r.r i.ikcs po,ieijion of the property. ihcrïw rnaierilli and the icmitin-
1.hr.dgoods on the d.i! ihe iranhlkr-tri-ouncrjhip dccision is issurd in acci)rd:incc
uiih Ariicle 586 ofihc Codc AI1ihc cxpc.n\ci conncctcd u~th the s~leiniluding
s~1r.tiar and propcrty-trxnsier Icc,.illhc borne by thc buycr.
The unwccessful biddcrs ivillreceive hiick the bond and crpcnsc der>oritpaid
hy thcm For thrce consccuiitc days prinr IO ihc sale.;inotice uillbr.pi)\tcd on
ihr hullctin board 01' ihis suxi containing ;ilIhc provisions of ihis ordinancc.
wiihan ideni#c:ilnoiiccaoocarine-in ihc Oliicial Ncuso.o.r of the Sictli~nRec?on
in the name of the Clerk.''
The liquidaior will furnish an abstract of this ordinance io the creditors with
outstanding claims having the right of pre-emption on the property, as well as
possible hypothecary creditors. who have registercd at lcast two weeks prior to
the daie seheduled for theauction.
An abstract of this ordinance will be published inhe name of the liquidaior in
the following papers: 24 Hore; II Globo; II Corriere della Sera; Il Giornaledi
Sicilia; Die Telegrafeof Amsterdam; Le Monde of Paris: FrunkfurrerAllegemeine
of FrankfurtlMain; Finuncial Times of London; NihunkeizaShimbun of Tokyo;
the Neiv YorkTimes; and Le Soir of Brussels.The abstraet 10be puhlished willbe
issued in ltalian for the ltalian newspapers, in French for the Paris andBrussels
newspapers, in German for the Frankfurter paper, and in English for al1the other
newspapers mentioned.
Palermo (dateillegible)
The Clerk The President Judge
(Signature) (Signature)
(handwritten footnotes illegible)
[Italian text notreproduced]
CIVIL AND PEPIALCOURT OF PALERMO
THE HON. JUI>GEIN THE BANKRUPTCY CASEOF RAYTHEO INLSlS.P.A.
APPEAL
In opposition to ihe ruling made by the Court in the bankruptcy case of
Raytheon ELSl S.p.A., on 7June 1969. DOCUhlENTS ATTACHED TO THE COUNTER-MEUORIAL 347
Raytheon Europe International Company. through Attorney Giuseppc llisconti
special procurator by powcr of attorney issued on 28 August 1968.certificd by
Notary Public George B. Klim on 4 September 1968and legalizedby the Italian
Consul-General in Boston. F. Tonci Ottieri. on II Scptcmber 1968:defended by
the said Attorney Giuseppe Bisconti ofthe Court of Rome and rcprcscntcd by
Attornev Francesca Calamia of thc Court of Palermo bv aoorooriatc oroxv lsee
marginjat whose olliccai Via ~apoli84 in Palermo he \;il1be d&nicildd l>e;id'ing
completion of the procccdings hcrcby initiated -
(In margin: In my capaciiy of special procurator of Raythcon Europe Interna-
tional Company I hercbydclcgiiicpower ofattorney to Mr. I'ranccscoCalamia,
attorney at law. to reprcsent the said Company as legal proxy in al1the phases
and aspects of these procccdings, and 1shall be domiciled in the legal scnsc al
hisofficeai Via Napoli 84. Palermo. Signatureand certifications.)
that Raytheon Europe Intcrnational Company (hereinafter called "RtlC") is
a creditor of the bankrupt Raytheon ELSl S.P.A. (hercinafter called "ELSI")
with unsatisfiedclaims againsi the latter:
- that RElC is represented in thecreditorcommittee of ELSI:
- tbat the ELSl crcditor commiitee. in a mceting on 6 Junc 1969.was asked to
agree to a proposal by the liquidatorjreceiver, Attorney Giuscppc Siracusa.
which related. inter rilioto an offer by Eltel submitted to the Court for the
acquisition of the ELSl fticility and ils asscts for the amount of
L.4,000,000,000(four billion lire), with an auction to takc pl:icc on 12July
1969for the sale of the said facility and assets at the minimum pricc:of L.4
billion of which L.3.2 billion would cover the buildings and cquipment and
L.0.8 billion would covcr raw materials and semifinished goods. excluding
those intended fortheproduction ofsemiconductors and excludingal1finished
eoods:
- chat in the said meeting the creditor committee members cxpressed ihcir re-
spectiveopinion as follows: twomemberslavourablc, the Presidentabstained,
the undersigncd (in thc above-mentioncd capacity) was aguinst il:
- that on request by the liquidator, the Court decided on 7June 1969 10proceed
with the salc by public auction. on 12July 1969.ofthe faciliiyequipmeni and
1001sof ELSl at the pricc and under the conditions indicaicd abovc. In
consideration of the above, R;iythcon Europe International Company, on ils
own behalf as a creditor and in the intcrest of al1the othcr crcditors of ELSI,
submits its
Apprul
against the ruling made by the Court in the bankruptcy case of Raytheon ELSl
S.P.A. on 7June 1969.for the followingreasons:
1. Refcrenceis made 10the mcmorandum by the Appcllant datcd 8 April 1969
and to the appeal by the samc daicd 10April 1969,which hcincorporated in full
in the appeal here submittcd.
2. The events following the said mcmorandum and appeal unfortunately con-
firm what was said in the same. 10 the cffect that theleilseurrilf!genicnlittokes il
;n~possibl IO seilthe facility or individual segments thereof ro rhirdpurriesother
than Eltelor othcr affiliatesof the IR1group. This wasdemonstratcd by the result
of the las1auclioniiig attenipt of 3 May 1969which saw no bidders, and il willbe
demonstrated again ai the auction attempt scheduled in the decision of 7 June348 ELETTRONICA SICULA
1969.which. as can beexoected withcertaintv. willsee no biddcr other than Eltel
or an l~l~lliliatc. for thc'rcïGiiis lhalcd 1,)ihe Imse
3. 7ïw It.urr/tu.ciinrribarcJru rk rrdi<<rru,tn ,uluz oi the ELSl husincis ns is
cvident froni the riricc reduciiun lin relation 10 the \ubstanccJ c,iahlishcd in ihc
ruling whichisthésubjcct of this appcal.
4. TheIeasehasenabledElrelrodicrarerhesellingprice. After having prcscnted
an "irrevocable" offer (yct on noncommittal terms) for the acquisition of the
facilityfor L.3.205,000,000,Eltelsubmitted to the Court, on 27May 1969.anothcr
offer (this time not only noncommittal but not cven "irrevocable" anymore) to
acquirc the facility and al1its asscts for the amount of L.4billion. Disregarding
the small differenccbetwecn the Eltel offer and the price proposed by ihe liquida-
tor, the base price for the auction scheduled for 12July 1969is cssentially thai
indicated by Eltel.
5. For the reasons mentioned in the memorÿndum and the abovc-rcferenced
appeal. Elrel'ssolereason for theleasetvasandsrillisIo assureElrelofafi~~~ourable
positionfor rheacyuisirionof de ELSl business~ .virhsubsranriadl isudranrirgefor
rhecreditors.
6. The salescheduled in the ruling against which ihisappeal is directed because
of the timingand rhe conditions involved, is nor in the inreresrof rhe cre<lirors
bccausc:
(ii,itrcrluccsthe pricc io a psinl uher~.ihc regiriered ïredilors cannol hopc Io
rcco\,ertheir mone, . h, il 1scheduled :ilioo short Aninicrval frum the preceding
auction attempt (ii should be notcd lhat four such auction attempts wcre schc
duled within a period of less than six months); (c) insufficicniefforts have bccn
made to seIl the facility by segments, i.e., individual production lincs, and no
oublished announcement was ever made reaardine the ~ossibilitv of selline the
- -
plint in ,cymcnts. On thcc~ntr~r).. ilsccnisth~ia icr) IargeCicrm~nsdrporaiion
had cxprcircd an inier:,t in ihc acquisltiun criihe <sr) ialu~hle microuaic \cg.
ment the inveniorv of which ii\;ilucd ai aht~ut1.1.5 billion. hui u;is di.c~~ur.iged
by people in gove;nmcnt circleson the basis of the suppositions made duringihe
creditors' committec meeting on las16 June where the Appellant heard about it;
(dj it providcs for the sale at a price bclow that cstablished for the prcceding
auction in clear contradiction to thejustification givenfor the lease io Eliel which
asserted that the lease would pcrmit a sale of the facility at a higher price for
reasons of greater operational efficiency.
7. The offer by Eltel of 27 May 1969is in no wayjuridically binding and thus
leaves that Company an option as to whether or not to bid in the auction or Io
justify ano-bid for any givenreason (for instance the small differenccbetween the
Eltcl offer and the liquidator's proposed figure covering thc asscts). Wiihin ihc
framework of the vanous actions taken by thc Administration which havecaused
the insolvencyand consequent bankruptcy of ELSI, and of the circumstances ihat
have prcvailed to this date. rhenet eflecrof ElrelS ofler ii.i//he rodiscouruge atiy
privav enrrepreneufrrom making a bid in rhr oucrion for the acquisition of the
ELSl business once it is publicly known that State agencics arc willing 10 take
over the ELSl facility and operations which, in essence. co~isrirureusuconfisc<irion
asfar ostheprivatebitsiiassnian iscunîerne(l.
8. The onk and inimediareeffecrof rire/e<~.se w ithin jusi a few weeks. vosa
rrducrionin priîe of the ELSl facility and its assets. with the risk. for cven the
privileged creditors (cxcept for the cmployces of ELSl whosc future was guaran-
tced by the Sicilian Regional Government. that if Eltel should no1 live up to ils
obligation (albeit moral rather than legallybinding)) to makc a bid in the auction
on IZJuly 1969.the final price would be so much lowcr. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 349
It is requested that, independcnt of the appeal submitted IO the Court on 9
June 1969,the ruling against which this present appeal is directed be revoked
immediately.
Palermo, 9June 1969
(Signed) Attorncy Francesco CALAMIA.
(Handwritten addendum of 20 June 1969illegible)
111-38.APPEAL l'OCOURTOF PALERM OND ADVERSD EECISION
[Iruliu~ire.xrnorreproducedl
CIVIL ANI> PENAL COURT OF PALERMO
APPEAL
AGAINST RuLING BY THE COURT DATE0 7 JUNE 1969 IN THE RANKRUPTCY CASEOF
RAYTHEON-ELSI S.P.A.
Raytheon Europe International Company. in the person of Attorncy Giuseppe
Biscontihaving special powcr of attorney issued on 28 Augusi 1968.certified by
Notary Public B.Klim on 4 Seplember 1968and legalizedby F. Tonci Ottieri, the
ltalian Consul-General in Boston, on II September 1968,defended by ihe said
Attorney Giuseppe Bisconti of the Bar of Rome and represented by proxy (see
margin) by Attorney Francesco Calamia of the Bar of Palermo at whose offices.
al Via Napoli 84. Palermo. if has its elective domicile for the purpose of the
proceedings hereby insiiiuied.
(In margin: In my capacity of specialprocurator of Raytheon Europe Interna-
tional Co. 1hcrcbv delee-.c Dowerof attornev to Att'v Francesco Caliimia for
lhc rcprc~ent.111o ii ilic s:iiJ (:onip.inir IIieirI:gaI proc,r.itdr in thc.,c.pro-
ccc.ling.. for iihlch pLrp<hc.in) clerii\~cJi~rniiilerrillhc.21 Ili.otti;~,;ilVIJ
S~poll $4. P~lernio S~giicJ C;iuscppcH~ri.intiCc.rtific<l. ,//,,~j.
H'/rr,rc,iK.i!ihcon Europe 1niern:iiion~lCoiiip~n) ~hercinaiterreierieJ \ois
"RCIC") 1, J cr:ilit<)rof the hankrupr Rd)rhcon-ELSI Sp.,\ (hcrcln~ilcrc:illeJ
"ELSI") and duly recognizedas such:
Wl~ereas.RElC is represented in the Creditors' Committee of ELSI:
Wliere<ist,he ELSl Creditors' Committee, at its meeting of6 June 1!)69.usas
called upon to vote in favour of a proposal by the Liquidaior. Att'y Ciiuseppe
Siracusa. reeardine. itirer<i/ira reauest orescnted to the Court bv Eltel for the
purchase oiihc li~ylit?and thc rlu ;naic;,31\ \upplicjiiiCLSl f,ir ihc aniount oi
L.4 0 billion. for hiilJin:ifourth aiirtiirnon I? Jul! IYhYior thc sile .rthe jiiiJ
iiic1111II~ rn~tcr~~~ >IIthc b.15~nrlrc.of 1.4 h~llldnincluJ1ne 1.3 2 hill~anidr the
factor; and eqiiipmcnt and ~.800 million for raw materials and semifinished DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 351
large German Companywhich had expressed an interest in the acquisition of the
hi-.lv valuable microwave production line with an inventory valued al about
L.1,500,000,000, was discouiaged by government circles, according to supposi-
tions made al the Crcditors' Committee meeting of 6 lune and noted by the
ADpciianton that occasion: Id) ordering ihe sale ai a price belowthat established
fh'the preceding auction manifestly coniradicts the justification given for the
lease of the facilityfo Eltel, namely, thdt the lease would make il possible to seIl
the facilityat higher prices due to iis grcater operational efficiency.
(7)Eltel'so~ffeorf27 May 1969clorsnor juridically cominir that Companyin any
way, leiivingEltel the option of whether or no1to make a bid in the auction or to
give any one justification for a no-hid position (Torexample, the small difkrence
between Eltel's offer and the figure proposed by the Liquidator for the raw ma-
~ ~
tcrials).
Hoi~.r~>rE r.IteIS ~?#i.rirhlrli ii,asdisdrisrdhi.rhepress,ii'illhaverhreffecwithin
the framework of a number of governmental measures which have caused ELSl's
insolvencv and subseauent baikruotcv a.d .he situation now ~revailinn. of dis-
.#,,ir.iri,.,,II>v,t.ir<,!,,pr~~twtir1,.t,znicikii?,! liti»Ili..r,t!UI,I;>rtlie;icquiri-
iidn OC the ELSI <>pr.r:ition<in:: lurilier puhli~ii) h.ir hem gi\cn 1'1ilie *iIliiigiir..;~
oip<,litic.il 3uilioriiic>ti:iLr.wcr ELSl'j pldnt .inSIhii\inr.,\ \\hich IIIthe,.i..-iiI
aprivarehusinessmrrcnonsrirure inessence a confscarion.
(8) The~ml?andivintedlatreJ>o qfthe Irrise. withinjust a fewweeks. hasbeen
a reducriorr of the price of the EI.SI facility with the said matcrials, with the
danger of serious losses to even the ~referred creditors (except for the ELSl
emgoyees whose claims are guaranteed by the Sicilian ~egional~dministration)
if, should Eltel not honour itsobligation (alheitjuridically noncommital) to make
a bid ai the auciion on 12July 1963,the pricc isdropped Further
For Al1TlieseReusons
and for the reasons outlined by the Appellant in its memorandum of 8April 1969
and its appeal to the Court dated 10April 1969,Raytheon Europe International
Company requests that the Court immediately revoke the ruling againsi which
this appeal is directe*. soas to prevent and avert thc most serious, irrel~arable
prejudice it would otherwise entail for thc creditors.
Palermo, 7June 1969
(Sixneclj Giuseppe BISCONTI,
Att'y Giuseppe BISCONT nI.q.
(Signedj (iillegiblej
Att'y Francesco CALAMIA.
THE COURT OF PALERMO
Third Section, Civil and Bankruptcy, meeting in the Chambers of the Council
and consisting of the followinggentlemen:
Dr. Livio Fivrani (?) President
Dr. Salvatore Burgio (?) Judge
Dr. Vincenzo Badalamenti Judge in above case.352 ELETTRONICA SICULA
Having read the above Appeal;
Having seen the record of the proceedings in the hankruptcy case of Raytheon
ELSl S.p.A.;
Considering that the first fivepoints of the appeal relate to the advisability of
leasingthe facilityin respect ofthe possibility of ajudicial saleof the same;
Considering that this Court has already decided this issuein ils ruling of 9 May
1969,filedin the Clerk'sOfficeon 19May 1969;
Considering that the remaining points relate 10 the timing, conditions and
modalities of the sale;
Considering that in this respect the Judge in charge of this bankruptcy case has
made good use of his discretional powers,
1. Byresponding to the need for an expeditiousdisposition of the operation;
2. Bymaking a small reduction (about 6percent) in the price of the raw materials
only whichisirrelevant with respectto the price establishedfor the las1auction
salethat saw no bidders;
3. Byofferingfor salethe plant with itsappurtenances;
Therefore, deeming the appeal unfounded and unacceptable,
ForAl1TheseReasons
The Court rejects the above Appeal.
Palermo, 20June 1969.
The Presiding Judge.
[Signarure)
Filed on 23June 1969.
The Clerk,
(Signature).
111-39.ASSIGNMEN OTASSET SOELTEL
[Iraliun tell and Engltranslationo1reproducedf:oranorherEnglish
translario»se1Menlorial o/rke UnitedStutes,Annel741
111.40.RAYTHEO ANGREEMEN TOTGRANT LICENCE
[See 1,Mernorialofthe UnitedSrares,Anner731 Unnurnbered Documents, Volume 111
[Iralian le.ïf nor reproduced]
APPRAISAL FOR DETERMlNlNG THE VALUE OF FACTORY E,QUIPMENT TO, OLS ,TC., Of
THE ELECTRONICS FlRM RAYTHEON-ES L.PI.A.
To the Hon. Judge Dr. Vincenzo Badalarnenti, Section 3a Bankruptcy, Civil
Court of Palermo
Inrroducfion
On 16 September 1968, Counsellor Giuseppe Siracusa, liquidator/receiver in
the hankruptcy case of Raytheon-ELSI S.p.A., asked the Judge, the Hrin. Dr.
Spina of the Court of Palermo. that one or several technical consult;ints be
appointed for determining the value of the plant, equipment and other assets of
the electronics firm known as Raytheon-ELSI S.P.A. of Via Villagrazia 79,
Palermo. and rhus the base orice for an auc~ ~ ~~
On 19Sepicmhcr IY6h. di the rcc,inimend.iiion oi Ailorne! Sir:icu\i. the Hon.
Judge Dr Spin;, ;ipp<ii~iicd ihc iin<lcrsigncdProf Ing. 313riiiPugl~si.Full Pr,ilï.,-
\or i>ithc I>cp.irtnicni oiK3Jto Technolog) .Ithi t':ir.ulioi Fngiriceringof the
L'ni\cr\it! of 1'lil:riii4s thc techniclil c,irisulia\ih<~ a:irIO procecd with the
:ippr.iij.il i>i'ihc~hine.mCntionçd .oiiip;in>. hcdccidcd thdi the tczhnii~l i:'onwl-
tant is ta be sworn in at the time the apprdisal report is submitted. The un-
dersigned, accepting the appointment and having read the text of the request by
the liquidator Attorney Siracusa which stresses the urgency of the appraisal no!
only for the reasons typical of bankruptcy situations involving industrial corpora-
tions, but most of al1 in view of the high obsolescence rate of the material
involved, immediately initiated the appraisal. In the course of this survey, the
technical Consultant availed himselfof hisfiducialco-workers as expresslypermit-
ted by the Iiquidator, verhally and in writing, in order to complete the appraisal
at the earliest possible date. Especially for on-site inspections and for individual
valudtions, the Consultant had the co-operation of Ing. Stefano Riva Sdnseverino,
professor of nuclear electronics at the University of Palermo.
The appraisal was begun bythe undersigned on 20 September 1968,at 10a.m.,
on the premises of the electronics 6rm Raytheon-ELSI S.P.A.at Via di Villagrazia
79, Palermo, and continued every following day, mornings and afternoons,
through 29 September 1968, in an effort to obtain and objectively ascertain al1
the data needed for the completion of the task with whichthe Court had eritrusted
the undersigned. The survey progressively produced the data which have been
compiled into the report here submitted. For a more organic structuring of the
appraisal, this report is broken down into the following chapters:354 ELETTRONICA SICULA
1.Outline of the electronics fim Raytheon-ELSI S.P.A.'
2. Valuation criteria and appraisal methods.
3. Detailed appraisal of Raylheon-ELSI S.p.A.'
4. Summary.
5. Conclusion.
FOURTH CHAPTER
GeneralStimn~ary
This chapier gives a recapitulation and sumrnary of the sectional appraisals
shown in detail in ihe precedingchapter, for establishing the overall valuation of
the Raytheon-ELSI S.P.A. electronics Company.
(A) Land:
1. Levelground L.447,478,500
2. Strongly sloping terrain 1,000,000
3. lmprovements for roadways, courtyards, etc. 44,660.000
4. lmprovemenis for parking lots 10,800.000
Total land valuation: L.503.938.500
(6) Buildings:
1.Appraisal of buildings L.1,278,040,000
2. Minus cosi of renovation 65,000,000
Total valuaiion of buildings: -.1,213,040,000
(C) Equipmenrand Maclrinery:
1. "MEC" Section L.149,250,000
2. "LAC Section 29,500,000
3. "COMPLEX" Section 26.280,OOO
4. "OST" Section 26,850,000
5. "DCQ Section 31.400,000
6. "MET" Section 344,280,000
7. "MET-TOOLS' Section 60,350,000
8. "SCA Section 12,950,000
9. "LAMPS'Section 26,310,000
10."RAX Section 86,310,000
I1. "TRC (CRT) Section 608,133,940
12. "COMBINED INVENTORY" Section 161,390,000
13."SIM" Section 523,586:OOO
14. "SCD" Section 356,640,000
15. "SIM DISTRIBUTION, SUPPLIES, ACCESSORIES"
Section 287,450,000
16."MISCELLANEOUS" Section 39,750,000
17."X" Section 12,000,000
Toial equipmeni appraisal: L.2,782,459,940
(D) Cupilul Equipnienc: - L.61,150,000
'For the purposeofthe followingreporthe dedgnationelectronifinn Raytheon-
buildings, plantpment.machines.ioolsand furnish~ngs h~carethe directabjecof
thisappraisal. DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 355
FIil'H CHAPTER
Conclusions
From the group totals shown in the preceding chapter for the calegories
"Land" "Buildings", "Equipment and Machinery", and "Capital Equipment",
wederive the value of the Raytheon-ELSI S.P.A.electronicscompany as follows:
1. Land L.503,938,500
2. Buildings L.1,213,040.000
3. Equipment and Machinery L.2,782,459.940
4. Appurtenances and Furnishings (capital equipment) -- L.61.150.000
L.4,560,588,440
The undersigned TechnicalConsultant thus considerscompleiedthe assignment
given him by thc Court, declaring that the value of the electronics company
Raytheon-ELSI S.P.A. is four billfivehundred and sixty million fivehundred
and eighty-eight thousand four hundred and forty Lire.
The TcchnicalConsult;int
(Prof. Dr. Ing. Mario Pu<;Lisi)
(Signulure)
IV-2.COMPLAIN OF BANCO DIROMA
/Irulian le.rrund E~rglishrrunsIurionnorreproduced]
IV-3.COMPLAI~ O.FBANCO CO~IMERCIAT LEL LIA NA
[Iruliun re.xrund Ei~glirhrrunslurionno1reproduced] ELETTRONICA SICULA
IV-4.COMPLAI OFTBANCODISICILIA
[Ilalion 1e.vandEnglishrranslarionnotreproduced]
IV-5.COMPLAI OFTCASSADIRISPARMIO
(lialian rexrand Englishtrunslationno1reproducrd]
IV-6.DECISIINFIMIRCASE
[Itulian re.rrundEnglishrronslarionnorreproducedl
IV-7.RAYTHEOBNRIEFOSUPREM COURT
[Iralian reïr anclEranslarionno1reprodi<ce<lj
V-lCURATOR RSWRT OF28OCTORE 1968
[Iraliun re.rrundEnglishrrrinslafionnotreproducedj
V-2.ELSlPLANTBROCHURE
[Nor reproducedj DOCUMENTS ATTACHED TO THE COUNTER-MEMORIAL 357
V-2A.CURATORA 'CCOUNT S BANKRUPTCY
[Iralian ieri noreproduced]
BANKRUPTCY CAS1OF RAYTHEON EL.SIS. .P.APLAN FOR I'ARTlAL DISTRIBUTION
Claims verifiedand approved as nt 13November 1969.
PrefrrredClaims:
Taxcollector lstate ..,nertv tax and misce~ ~ ~ousother
tax liabilities L.255,165,432
Public RegistryOffice(registration/stamp Tee) L.22,010,000
IRFIS (principal and interest as of 12July 1969)
L.2,638,347,390
Bank of Sicily(principal and interest as
of 12July 1969) L.855,066,945
Money due the workers L.987,868,398
I.N.P.S. (socialsecuritv) L.319.058.192
I.N.P.D.À.I. (health insurance premiums)
I.N.A.M. (employeeinsurance)
I.N.A.I.L. (workmen'scompensation)
E.A.S.D.A.I. (management employee insurance)
Other preferred claims includingturnover tax,
customs duties, etc.
Total
Total, ordinary claims:
Cost ofprocecdings and administrativc expenses
as of 31Oct. '69
Storage charges claimedby General Warehousing
Consortium
Total
From saleof plant and equipmcnt, including theamount
charged the buyer on releasefrom receivership
From leaseof the facility
Total receipts
Minus set-asideper Article 113.L.F.
Distributable balance:
(a) Proportional cost of proceedingsand administrative
expenses
Balance
(b-2041~)Local tan (propcrty tax and late charges on
arrears)
(c-l/c) Public RegistryOfice (registration/stamp fee)
Si)tr.This;iniouni \vasaIloucd underambiguou.;cir.
cumsiiiiicesnoi !.elclexred ..p. and uill beuith- held or deposited according to a forthcoming
decision by the Court.
Balance
(d-130/r) I.R.F.I.S. (firstmortgage) already paid by sub-
scription on ELTEL'spart 10a mortgage loan
with IRFIS dated 6 August 1969, by Bianca
Barbera
Balance
(e-1301~)I.R.F.I.S. (firstmortgage). amounl ofprincipal
and interest as of 12July 1969
Balance
(/-2211~) Bank of Sicily(second mortgage). applied on
account:
Note: The Bank's remaining claim will be satisfied out
of the sale of chattel to the extent providcd for in
Article277813C.C. and under the termsof Article
5 of law No. 135of 16 April 1954,with priority
rights on the raw materials on hand.
Receiptsfroni the SoleofChatrel-
From the saleof raw materials
From the sale of finished goods and collection of re-
ceivahles
Total reccipts
Minus set-asidesper Article 113L.F
Distributable balance
(a) Proportional cos1of proceedingsand administrative
expensesper Article II 1L.F.
Balance
(b) Claims by secondary lenders (preferred claims per
Article (illegible), paragraphs 1and 2, law No. 153
of (illeg.) minus deductions by way of (illeg.) in
favour of Compagnia Tirrena di Capitalizzazione
ed Assicurazione (CTCA) and minus legally ap-
proved distraints by third parties (seeattached list)
Balance
(c-T.3)CTCA (preferred employeeclaims)
Balance
(d) CTCA (above) (claims . . .(illeg.) with deductions
for employees(seeattached list))
Balance
(e) Randazzo Ange10S.P.A. (claim allowed per order
of the Palermo Magistrale on 1 April 1969, . . .
(illeg.) distrained by employee Viola Stefano), on
the condition that the Court recognize the amount
and dispensewith the payment
Balance
(f liquidatorlreceiver of bankrupt Raytheon-ELSI..
preferred claimallowedby order ofthe Palermo Ma- DOCUMEXTS ATTACHED TO THE COUNTER-MEMORIAL 359
gistraie of I April 1969. . (illeg.10 the employee
ViolaStefano (under sameconditions as above) L.15,OOO
Balance L.213,~170,017
(g) Niela Colombo, Oldani (T.9). preferred employee
L.744,863
claim forthe amount allowed by the Magisirale
Balance L.213.125.154
(h) I.N.P.S. Palermo, preferred claim on pdid-up IVS
share (1.17)perArticle66, secondparagraph, of law
No. 153of 30 April 1969,under exclusion of any
other amounts not constituting IVS shares which,
per the aforesaid ban, have the priority thereby
established ...(illeg.) L.135.175.921
Bal.~~~~~ L.78.049.233
(i) . . . DAI (illeg.(applications No. 180and 209),
preferredclaimas under (h) above L.24.793.263
Balance L.53.255,968
. . Bank of Sicilv. Industrial Credit Devariment. on
account: L.53;155,968
Special priority on raw materials and finished pro-
ducts Der Article 5 of law No. 135 of 16 April
Palermo. 18November 1969
The Liquidator
(Ati'yGiuseppe SIRACUSA)
SCHEDULliOF BANKGUARANTEES
PAlD BY RAYTHEON
Lire 2,272,770,410 ($3,636.432.70)
Banca Nazionale del Lavoro
BancaCommercialeltaliana 2,359,955,496 ( 3,775,928.80)
Bancodi Roma 242,594,802 ( 388.151.70)
Bancodi Sicilia 754,160,959 ( 1,206.657.50)
Lire 5,629,481,667 ($9,007,170.70)
Equals at an exchangerate of $1.6 = Lirc 1,000. ELETTRONICA SICULA
V-4. RAYTHEON O'PENACCOUNT CLAIM OF LIRE550,000,000
RAYTHEONCOMPANY
ACCOUNT RECEIVABLE DUE FROMRAYTHEON-ELSI
Ini~~icNo. Transaction Amount Bulance
CC65217 Corporate Special Purchases $10,576.22
CC65218 Western ElectricityRoyalty 59,045.18
CC65229 lnterest on Guaranteed Bank
Loan
Nato-Hawk Components
Trade Accounts
Commissions
Royalty Account
Management Fee
Accounts ReceivableOther
Industrial Tubes and Other
Items Sold 10SELlT (So-
cieta Electronichealiano)
Counter-Memorial of Italy