In certain other respects, however, the Bagdad Railway Convention was radical and far-reaching in its innovations. Worthy of first mention among its unusual provisions is the sweeping tax exemption granted the concessionaires by Article 8: “Manufactured material for the permanent way and materials, iron, wood, coal, engines, cars and coaches, and other stores necessary for the initial establishment as well as the enlargement and development of the railway and everything pertaining thereto which the concessionaires shall purchase in the empire or import from abroad shall be exempt from all domestic taxes and customs duties. The exemption from customs duties shall also be granted the coal necessary for the operation of the road, imported abroad by the concessionaires, until the gross receipts of the line and its branches reach 15,500 francs per kilometre. Likewise, during the entire period of the concession the land, capital, and revenue of the railway and everything appertaining thereto shall not be taxed; neither shall any stamp duty be charged on the present Convention or on the Specifications annexed thereto, the additional conventions, or any subsequent instruments; nor on the issue of Government bonds; nor on the amounts collected by the concessionaires on account of the guarantee for working expenses; nor shall any duty be levied on their stock, preferred stock and bonds, or on the bonds which the Imperial Ottoman Government shall issue to the concessionaires.” Thus the Bagdad Railway not only was assured of a subsidy constituting a preferred claim on certain taxes collected from the Turkish peasantry, but, in addition, was exempted from the payment of important contributions to the national revenue. The extent to which such an arrangement would confound confusion will be clear if one will recall that many other restrictions on the collection and disbursement of public funds were vested in the Ottoman Public Debt Administration.[52]
Incidental to the railway, the Bagdad Company was granted other valuable concessions. The corporation was given permission to establish and operate tile and brick works along the line of the railway. For the direct and indirect use of the railway and its subsidiary enterprises the Company was authorized to establish hydro-electric stations for the generation of light and power. The erection of necessary warehouses and depots was permitted as essential to the proper operation of the railway. The Anatolian Railway was empowered to provide for satisfactory ferry service between Constantinople and Haidar Pasha, in order to insure direct sleeping-car service from Europe to Asia and to provide other facilities for through traffic. All of these subsidiary projects were to enjoy the same exemption from taxation as the railway itself.[53]
The concessionaires were granted the right of constructing at Bagdad, Basra, and at the terminus on the Persian Gulf modern port facilities, including “all necessary arrangements for bringing ships alongside the quay and for the loading, unloading, and warehousing of goods.” During the period of the construction of the railway the Company was granted rights of navigation on the Tigris, the Euphrates, and the Shatt-el-Arab for the transportation of materials and supplies necessary to the building and operation of the main line and its branches.[54] These river and harbor concessions aroused the fear and the rage of the Lynch Brothers, who, as we shall see, were to be among the leaders of British opposition to the Bagdad Railway.[55]
These, then, were the outstanding economic provisions of the Bagdad Railway Convention of 1903. The Imperial Ottoman Government assumed the cost of the construction of the railway and, in addition, guaranteed a certain minimum annual return on each kilometre in operation. It pledged for these purposes the taxes of the districts through which the railway was to pass, and it deputed the Ottoman Public Debt Administration to collect these revenues and supervise payments to the concessionaires. As additional compensation to the Company it made large grants of public lands and conceded valuable privileges indirectly connected with the construction of the railway. In this manner the Sultan mortgaged his empire. But mortgages have their purposes, and Abdul Hamid hoped for big things from the Bagdad Railway.
Some Turkish Rights Are Safeguarded
As mortgagor the Sultan was certain to insist upon the recognition and protection of certain rights. To assure observance by the concessionaires of their obligations under the convention, supervision over construction, operation, and maintenance of the railway was vested in the Ministry of Public Works, represented by two Imperial Railway Commissioners. As a guarantee of good faith the Company was obliged to deposit with a Constantinople bank a bond of £30,000, subject to release only upon the completion of the entire line. The Ottoman Government was determined, also, that the concession, far-reaching as were its implications, should not lead to additional extra-territorial rights, or “capitulations,” in favor of foreign powers. The concessionaires were forbidden to contract for the transportation of foreign mails, or to perform other services for the foreign post offices in Turkey, without the formal approval of the Ottoman Government. It was specified, also, that, inasmuch as the Anatolian and the Bagdad Railway Companies were Ottoman joint-stock corporations, all disputes and differences between the Government and the Companies, or between the Companies and private persons, “arising as a result of the execution or interpretation of the present Convention and the Specifications attached thereto, shall be carried before the competent Ottoman courts.” It was further provided that the concessionaires “must correspond with the State Departments in Turkish, which is the official language of the Imperial Ottoman Government!”[56]
The Government was sincere in its determination that the railway should become a powerful instrument in the economic development of the backward provinces of the empire. A significant clause specified that the section between Bagdad and Basra should not be placed in operation before the section between Konia and Bagdad should have been opened to traffic, although immediate operation of trains on the former section would have enabled the Company to compete with the valuable trade of the Lynch Brothers on the Tigris. The traffic between Bagdad and Basra would have been profitable and would thus have decreased by a considerable figure the total subsidies the Treasury might be obliged to pay for railway operation. It was of more immediate concern to the Turkish Government, however, that southern Mesopotamia should be connected by an economic and political link with the rest of the Sultan’s dominions. Elaborate regulations were laid down regarding a minimum train service which the Company was required to supply, and it was specified in this connection that Turkish mails, together with postal employees and officials, should be transported without charge and under such other conditions as the Government might stipulate. To forestall discriminatory treatment of passengers and shippers maximum rates were prescribed for all classes of traffic, including express, insurance, and similar supplementary services; it was decreed that “all rates, whether they be general, special, proportional, or differential, are applicable to all travelers and consignors without distinction”; the concessionaires were “formally prohibited from entering into any special contract with the object of granting reductions of the charges specified in its tariffs.”[57] This last provision was of the utmost importance, as it enabled Germans and Turks alike to point to the railway as an outstanding example of the economic “open door.”
One of the chief interests of the Turkish Government in the construction of the Bagdad Railway was the possibility of its utilization for military purposes. In time of peace for purposes of maneuvers or the suppression of rebellion, in time of war for purposes of mobilization, the Company was required, upon requisition of the military authorities, to place at the disposal of the Government its “entire rolling stock, or such as might be necessary, for the transportation of officers and men of the army, navy, police or gendarmerie, together with any or all equipment.” The Government undertook to maintain order along the line and to construct such fortifications as it might consider necessary to defend the railway against invading armies, and the Company was obliged to expend, under the direction of the Minister of War, a total of four million francs for the construction of military stations. To give effect to all of these provisions, a special military convention was to be drawn up and approved by the Company and the Minister of War.[58]
Upon the expiration of the concession all rights of the concessionaires in the railway, port works, and other subsidiary enterprises were to revert, free of all debt and liability, to the Imperial Government. In the meantime, a semblance of Turkish nationality was to be assured the enterprise by the stipulation that the railway employees and officials should wear the fez and such uniform as might be approved by the Government. It was contemplated, also, that within five years after the opening of each section to traffic the whole of the operating staff, except the higher officials, should be composed exclusively of Ottoman subjects.[59]
Appended to the Bagdad Railway Convention was a secret agreement binding the Company not to encourage or install foreign settlements or colonies in the vicinity of the Anatolian or Bagdad Railways.[60] Although the Sultan had mortgaged his empire, at least he was determined to retain possession![61]