Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

190. Memorandum of Conversation¹

Mexico City, February 15, 1979, 9 a.m.–noon

SUBJECT

• Discussion of U.S.-Mexican Bilateral Issues

PARTICIPANTS

• U.S.
• The President
• Cyrus Vance, Secretary of State
• Dr. Zbigniew Brzezinski
• Patrick Lucey, U.S. Ambassador to Mexico
• Viron Vaky, Assistant Secretary of State
• Jules Katz, Assistant Secretary, Economic Affairs
• Matthew Nimetz, Counselor, Department of State
• Stuart Eizenstat, Assistant to the President for Domestic Affairs
• Jody Powell, Press Secretary to the President
• Robert Pastor, National Security Council Staff
• Mexico
• President Jose Lopez Portillo
• Santiago Roel, Foreign Secretary
• Hugo B. Margain, Mexican Ambassador to Washington
• David Ibarra Munoz, Secretary of Finance and Public Credit
• Miguel de la Madrid Hurtado, Under Secretary of Finance and Public Credit
• Ricardo Garcia Sainz, Secretary of Programming and Budget
• Dra. Rosa Luz Alegria Escamilla, Under Secretary for Evaluation
• Jorge de la Vega Dominguez, Secretary of Commerce
• Hector Hernandez Cervantes, Under Secretary for Foreign Commerce
• Jose Andres Oteyza Fernandez, Secretary of National Wealth and Industrial Development
• Ing. Jorge Diaz Serrano, Director General, PEMEX
• Oscar Flores, Attorney General of the Republic
• Jose Ramon Lopez Portillo, Director General for Documentation and Analysis, Department of Programming and Budget
• Rafael Izquierdo Gonzalez, Advisor to the President
• Fernando Rafful Miguel, Head of Department of Fisheries

Lopez Portillo: Yesterday, Mr. President, we began our discussions on international topics.² It is proposed that today we take up bilateral matters. If you agree, you may wish to initiate the discussion.

Carter: I would like to do so. Let me say first that we are eager to conclude this visit with an agreement between us—and with a perception by the peoples of our two nations—that this has been a successful visit and constructive. Of all the visits I have made, this one has aroused the greatest interest in my country. This is an accurate measure of the importance we attribute to Mexico and our relationship.

There are serious problems and issues, but we want to turn them into opportunities. Some of the major issues are energy, trade, border questions and future collaboration on technology and the achievement of a better quality of life for our two nations.

Let me begin frankly with energy:

We are pleased and excited over your prospects for developing major energy resources. We have no desire to influence such matters as your production, exploration, distribution of your resources. This is entirely your prerogative. We would like to be good customers for what you may want to sell to us. We want to pay a fair price and would like to negotiate long-range arrangements without delay.

As far as oil goes, a fairly standard world price pattern exists in terms of long-term contract and spot-price purchases. At present our purchases of your oil are normal and routine—and are satisfactory. We do think that there is an advantage to you in selling to us because our location means lower transport costs. At present we import 45 percent of our consumption. For a number of years therefore the U.S. will be a ready market for whatever oil you decide to sell to us.

As regards gas, for now and the immediate future we have ample supplies of gas. We have increased local production and are constructing the Alaskan pipeline which will increase supplies. But my expectation is that when your gas development reaches the point where you are ready to sell, we would be prepared to buy it. Obviously the terms of delivery and price would have to be arrived at through negotiation.

I regret last year’s misunderstandings on gas.³ It was embarrassing to both. Our problem is that our government does not play a role in the purchase, commercialization and distribution of gas and oil. That is in the hands of private companies. But our regulatory agencies must control prices and protect consumer interests. Private oil companies are interested in keeping prices as high as possible because they control reserves they would like to sell in the future.

Our desire would be to have our government representatives meet without delay to determine the terms of such future sales as you deem it best to make. Then within those parameters, the companies would be free to purchase gas or oil. I have studied the history of the negotiations last summer, and I believe we can negotiate an agreement satisfactory to the interests of both countries. There is no doubt that our market will be a growing one. We want to be good neighbors and customers, recognizing your patrimony over your own resources. Would you like to comment on these points?

Lopez Portillo: I am afraid my answer will be long, because I want you to understand our views. Oil for us is a symbol as well as an energy source. The Cardenas expropriations⁴ were historic milestones. Our whole history has been a fight for decolonization. In the 19th century it was a political fight. In the 20th it was oil expropriation. Thus oil is a symbol and surrounded with great emotion here. We define our identity in terms of oil.

Oil is also a non-renewable resource. Thus we must plan carefully for the future, and exploit oil on the premise that we do so to improve renewable resources. We must “sow the oil.”

This year we will produce 1.5 million BPD. We are increasing at an approximate daily rate of 25,000 barrels. All this requires considerable investment; it also means we must import large amounts of goods for this exploration and exploitation. Our studies show that we have oil throughout the territory of Mexico. Thus two points come up with regard to our economic structure—the amount of investment and the level of imports. The first relates to indebtedness. We have agreed with the IMF to respect certain limits regarding indebtedness—both public and foreign. A great speed-up of investment could deform the whole structure, and create inflation. Because we need imports we must also watch the level of imports to avoid a balance of payments problem. We have in short to be cautious with regard to our oil investment.

As far as production goes, there will come a time when we will have export surpluses, and relatively soon. We thought by 1982, but now it appears that point may be reached as early as 1980. What volume of exports? We do not want to go too fast. We need to develop projects first to use the petro-wealth we will earn, projects relating to poverty and unemployment. That takes time, and we want them in place first. Even if we have projects they must be implemented with a certain rhythm. We do not want to go so fast we provoke inflation or create a capital surplus and capital exports.

In short, we must link oil to internal development. We want to use oil as the trigger for our development “take off.” We have a globally congruent plan for development, centered around reorienting industrial development and helping create a more equitable population distribution. Simple import substitution does not serve us now. We must produce to satisfy the needs of the masses, not the middle and upper classes. We must organize to export. Oil enables us to do this, and we have a number of plans covering such things as agriculture, forestry, tourism, marketing education, etc.

The general structure of our plan was to divide my Administration’s period into three 2-year periods. The first two years were aimed at recovering from deteriorated conditions and reactivating the economy. We have been successful. The present two years will be aimed at consolidating our economy, and the last two years to acceleration. What does consolidation mean? Maintaining the indices, resolving certain bottleneck problems—petro-chemicals, trained labor, transport infrastructure. We have identified some seven to eight bottlenecks. Transport is a good illustration. We need the infrastructure to move the oil and the products of development. If we just produce oil we cannot take advantage of it without transportation infrastructure. What do we do first?

The fact that we found that gas was associated with oil meant that to activate oil production we had to decide last year how to handle the gas. Our alternatives were either to sell the surplus rapidly or use the gas to foster our industrial development. At that time—a year ago—we decided to sell the gas to our natural market quickly, i.e., the U.S. So I authorized PEMEX to negotiate with private companies who were interested. An agreement was not possible. This created political problems, but we have overcome those. We then decided to route the pipeline to Monterrey and circle our territory. This gas will replace other fuels which are easier to export.

Let me now relate specific conclusions regarding production. By 1980 we should reach our first production plateau of 2.25–2.5 million BPD. This will produce four billion cf of gas. Of this we will probably have 600–700 million cf to export, and with some increasing trend. There is a gas line from Reynosa to Monterrey that can carry this amount now. When we reach that production plateau we will review the economic situation to determine what we do next. Obviously we are flexible. We will then decide on the next plateau.

Within the range of all that I have said, then, we are in the market; we will respect the rules of the game. The U.S. is a natural client. We have of course had relations with you for a long time, selling both gas and oil. It would be absurd if for whim’s sake or xenophobia we withdrew from the market. Negotiations should be opened to reach sales agreement. Price and terms should be worked out.

On price, I repeat that the economic order is not designed to help LDC’s. We want to rationalize flows. We need to revalue our assets because our terms of trade deteriorate. With reference to gas, price was one of the objections to last year’s negotiations. Gas can be considered a fuel; it has caloric value. Is it not reasonable to give it a price equal to other fuels even if it is the lowest price? I put these considerations on the table. This is the rationale that should govern the price of gas. We are ready to talk about gas and oil. We should come to some agreement on a system for long-term relationships, established on a rational basis as regards terms for trading in this crucially valuable and emotionally charged resource.

But I must say clearly and frankly, Mr. President, that the basis we established for gas sales cannot be modified by us without domestic difficulties and without damage to my own credibility and position. This is not abusive; it is realistic.

In short, we are disposed, once the U.S. has determined its policy (and we do not wish to interfere in its domestic politics or policies) to negotiate. This is not a bluff. Neither you nor we are in a hurry. It would not be a failure if we could not agree on price. What we should do, however, is establish permanent bases for the long term. If these are well balanced, flexible, there should be no problem.

Carter: I presume, then, that you think it would be advisable to resume discussions at the government level, recognizing that we are not in a hurry, and with respect for each other’s interests, looking to the future.

Lopez Portillo: Let me clarify this. You are talking about government negotiations? Because an alternative is to have the companies negotiate with PEMEX.

Carter: Government to government.

[Lopez Portillo nodded assent.]

Good. Your explanation has been very helpful. I believe I understand the special symbolic importance of energy to your country. Many of these considerations are not unique to Mexico. The question of depletion of non-renewable energy resources is certainly a concern of ours. Problems of debt, balance of payments, trade—these issues are on my plate as well.

As is true of Mexico, the U.S. also has a rapidly growing number of adults entering the job market. We are also concerned about investments to provide employment for these people coming into the labor market.

It would be a mistake for the U.S. to blame Mexico or for Mexico to blame the U.S. if we sometimes have difficulties. There is no question of the need for fair play. I am determined that my country will always act in good faith.

There are ways in which we could collaborate and cooperate. In nuclear energy, we would be glad to cooperate with you, if you wish, depending on what your plans are. Solar energy is another area in which we would welcome close collaboration. We could study electricity exchanges along the border. Transportation systems in both countries have needs. Railroad as well as other types. We could collaborate in exchanging information in that regard. There would be a great advantage in increasing tourism for both countries and expanding student exchanges, and these areas offer opportunities for cooperation. As your country industrializes, we would be glad to share our experiences with you so that you could profit by our successes as well as by our mistakes. Mutual financing arrangements and inflation control are additional areas in which we could exchange information and ideas. We have made full progress in the area of water resource management, but there is a need for cooperation in sanitation and pollution problems, and these should be tackled jointly.

I could mention other areas, but the point is that the bases for cooperation in all these areas would be complete equality and mutual respect and with no intention to influence each other against each’s interests. We established a Consultative Mechanism in 1977 to pursue some of these subjects. It made some progress but my assessment is that it needs to be improved. The ones that consult should have more authority to decide and act, specific assignment should be broadened and agenda items expanded.

Our Ministers should explore all this without delay—and you and I can be in touch with each other personally or in writing to handle differences that may arise. We can explore this more at our private meeting at breakfast tomorrow.

I want our frankness to result in tangible accomplishments and future agreements.

And I hope we won’t wait two more years to get back together to resolve our differences.⁵

Lopez Portillo: I would like to go a little bit deeper into energy. I want to ratify Mexico’s position that oil will be treated as the heritage of mankind. I want to reopen the idea of establishing an international order to manage consumption, production, distribution—not only of oil but all energy sources. I note, by the way, that Mexico buys butane and propane at American market prices.

Let me refer to uranium. My associates tell me that the U.S. has not authorized the return of uranium sent up for enrichment, adducing the need for some security safeguards. This illustrates the problem of dependence, which we don’t want for other areas because it would encourage us to turn to other sources. We are a peaceful country, and we will not use atomic energy for anything but peaceful purposes.

On electricity, let us by all means explore such exchanges. We are totally willing to enter into such arrangements.

We believe the technological development of the United States is extraordinary. We are certainly interested in making use of your technology. We need to explore its links to financing and markets. We are interested greatly in solar energy and alternative sources of energy, and we offer what we have. I believe we can find a just and fair exchange. What you said is very interesting to us.

In general all these things would be part of the general system I talked about yesterday.

Carter: I am pleased that we can move on electricity exchanges. On nuclear fuels, I think I can assure you that the problem will be resolved when you are ready for it. I will give this my personal attention when I return.

As you know, Congress has passed a non-proliferation law that has caused problems and delays in regard to nuclear fuels,⁶ but these are being resolved.

We can also explore the possibility of an oil swap between Alaska, Mexico and Japan to save transportation costs and benefit all concerned.

I suggest that we allow our strengthened consultative group to explore all these things and then you and I get together again sometime, perhaps this summer if that is convenient to you, to assess what has happened and resolve any differences that exist. If we announce we will meet personally to assess their work, this might stimulate our staffs to move more expeditiously. We have done so well in narcotics cooperation, under the leadership of Attorney General Flores. This shows that when we work well together the progress can be great.

Lopez Portillo: I want to underline the importance of the possibility of supplying oil to Japan from Alaska which we would deliver to you. This is just the kind of rationalization of oil flow I referred to when I talked of international cooperation and organization. For ideological reasons and clients we distort and make prices higher than necessary. We accept the idea of a swap with enthusiasm.

Carter: Do you agree that we should meet early this summer or at the beginning of summer?

Lopez Portillo: In view of the similar views of our associates about the meeting [all around the table smiled after the President’s remarks on the matter to expedite decision making by a Presidential meeting], I am in agreement with your ideas.

[Omitted here is discussion of trade, narcotics, and immigration.]

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 37, Memcons: President, 2–3/79. Confidential. The meeting was held at Los Pinos, Mexico’s Presidential residence. All brackets, except those indicating material omitted by the editor, are in the original. Carter was in Mexico City February 14–16 for a State visit.
2. The memorandum of conversation of the February 14 meeting is ibid. It is scheduled for publication in Foreign Relations, 1977–1980, volume XXIII, Mexico, Cuba, and the Caribbean.
3. See Document 170.
4. Reference is to Mexico’s nationalization of its oil reserves and its expropriation of foreign oil company equipment under President Lázaro Cárdenas in 1938.
5. Carter and López Portillo met in Washington February 14–15, 1977.
6. The Nuclear Non-Proliferation Act was signed into law on March 10, 1978. (P.L. 95–242)