Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 7, 1915

File No. 812.63/148.

Mine and Smelter Operators et al. to Special Agent Canova.

Washington, April 21, 1915.

Dear Sir: Confirming our conversation at your office yesterday, I wish to say that as representative of the Mine and Smelter Operators Association in Mexico we have had many meetings recently with Mr. Escudero, Minister of Finance in General Villa’s Cabinet, with the view of securing modification in the rate of export taxes which the Minister proposed to levy upon the mining industry in the Republic. As a result of these meetings we finally entered into a contract with the Minister of Finance of Mexico, representing the Federal de facto Government, and with Mr. F. Avila, Military Governor of the State of Chihuahua, copy of which we enclose herewith marked Exhibit A.

As a result of this contract, and based upon the terms set forth therein, the decree affecting export tax was issued on the 19th day of March, 1915, copy of which we enclose herewith marked Exhibit B.

On the same date the Minister of Finance issued a decree materially modifying the law under which titles to mining properties are held in Mexico and which is most drastic in its effect, copy of which we enclose herewith marked Exhibit C.

Upon receipt by us of the decree, on March 26, 1915, the Mine and Smelter Operators called upon Mr. Escudero at Chihuahua and discussed the terms with him very fully and addressed a letter to Mr. Escudero, copy of which we enclose herewith marked Exhibit D.

A committee of the Mine and Smelter Operators Association then called a meeting at El Paso on April 1, 1915, and made representations to the State Department at Washington as per copy enclosed herewith marked Exhibit E, and sent the Secretary of State a telegram as per copy enclosed herewith marked Exhibit F, to which we received a reply from the Secretary of State as per copy enclosed herewith marked Exhibit G.

We have been furnished with a copy of a telegram from Mr. Carothers to the Department, dated at Irapuato under date of April 16 [12], copy of which we enclose herewith marked Exhibit H.

This gives you a complete file covering negotiations with the de facto Constitutionalist authorities under General Villa.

We are filing an official letter addressed to the State Department in Washington in which we are urging upon the Department the necessity of insisting upon the repeal of this decree in its entirety, which letter will no doubt reach you in due course.

We only wish to repeat that under no circumstances do we consider it advisable to consider any modifications of that decree, which to the best of our understanding will result unquestionably in the confiscation of many, if not all, foreign-owned mining properties within the Republic of Mexico.

As per our statement to you, we discussed this entire matter at some length with Mr. Llorente yesterday, who in the course of his conversation with us, stated that he had been advised by General Villa that this decree would not be enforced at the present time, but he gave us to understand that it would be enforced when conditions had improved in Mexico and transportation facilities were such as would, in the judgment of the Minister of Finance, permit of the operation of the properties. We called Mr. Llorente’s attention to the fact that this law was a very serious modification of the conditions under which titles to mining property were held in Mexico; that it was retroactive in effect; and that it imposed burdens upon the industry in general which in effect were equivalent to confiscation of vested rights in the Republic.

Llorente stated to us that it was not the intention of the Government to make the law retroactive insofar as it referred to the amount of property that could be held under the decree, but in all other respects, and particularly as to the conditions and sufficient operation, it would apply to every property within the Republic.

In our opinion it is positively necessary that our Government insist upon the repeal of this measure in its entirety, as we believe that the enforcement of the decree, even in a modified form, would surely result in an effort to confiscate foreign-owned property in the Republic of Mexico, which in turn would lead to serious international complications.

Yours very respectfully,

• W. H. Aldridge.
• A. J. McQuatters.
  Committee representing the Mine and Smelter Operators Association and other mine owners in Mexico.

[Inclosure 1—Exhibit A.]

Miners’ Contract with the Villa Government, March 19, 1915.

In the City of Chihuahua on the 19th of March, 1915, there met, for one part, Citizen Attorney Francisco Escuclero, in charge of the Department of the Treasury and Public Works, in representation of the Provisional Government of General Francisco Villa, Chief of Operations of the Conventionist Army, and the Citizen General Fidel Avila, Governor and Military Commandant of the State of Chihuahua, in representation of said State; and, for the other part, the three signers as representatives of the mining and smelting industries in the said State; with the object of celebrating the contract which is set forth in the following clauses:

• First. The representatives of the mining and smelting industries voluntarily accept the increased taxes on precious metals in the terms of the decree of this date issued by the Citizen General Francisco Villa, and, for their part, propose the following conditions, which the functionaries above mentioned accept in all of its parts.
• Second. No other decree or additional law will be promulgated during the term of six months to count from this date, whether it be of a general or special nature, which may have for its object the increase of the taxes affecting the mining and smelting industries, or any of their branches exempt to the present from said taxes.
• Third. There will be no increase in importation duties on merchandise or articles for the use of the mining or smelting industries; neither will there be established a tax on said merchandise or articles which have been exempted to the present from said taxes.
• Fourth. The State of Chihuahua, through the medium of the Governor, agrees that no new taxes which affect directly or indirectly the above-mentioned industries will be imposed, neither will those already existing be increased, and this during the term of six months counted from this date; neither will the municipalities or other entities of the State be permitted to establish taxes, whether general or special, that affect the said industries, exception being made of those which existed during the year 1914.
• Fifth. The representatives of the mentioned industries agree to purchase from the State Treasury, or from the branches of the same, the legal money they may need for the operation of their business, in those cases where they find it convenient to do so, at the current rate of exchange in the market.

For the effects of this contract there is attached a copy of the decree which is referred to in Clause First.^*

• Francisco Escudero,
  Minister of Finance in Mexico.
• F. Avila,
  Military Governor of Chihuahua.

C. R. Watson,

A. J. mcquatters,

W. J. Quigley,
For the Miners and Smelters Operators Association.

[and representatives of nine other mining companies.]

[Inclosure 2—Exhibit B.]

Villa’s ore tax decree, March 19, 1915.

Francisco Villa, General in Chief of the Operations of the Conventionalist Army to the inhabitants of the Republic makes known;

That by virtue of the extraordinary powers conferred upon me by the Decree of 2nd of February of the present year, issued in the City of Aguascalientes, and

Considering that the army under my command has imposed upon itself the obligation of giving guarantees to Mexicans and foreigners, in order that they may dedicate themselves tranquilly to the peaceable exercise of their activities; and

Considering, that the same Army needs abundant pecuniary elements as well in order to carry to a satisfactory termination its patriotic duties as in order to insure the tranquility of the preceding consideration; I have seen fit to decree;

Article 1. The tax on the gold and silver that may be produced in the Republic, or which proceed from foreign countries, and which was collected by medium of the adhesion and cancellation of revenue stamps, will be taxed in future in the following form:

A. —Pure silver in bars, rich ore, cones, cakes and sulphides; ore in natural state or concentrates; mattes, smelter residues and any other substances which may contain it, destined for exportation, will pay seven, and one-half per cent of the value of that metal, in Mexican gold or its equivalent in American gold, at the rate of two for one; with the understanding that, for the effects of this article, the office of the Secretary of Finance will make known, monthly, to the National Assay Offices, to the Departments of the Treasury and to the Collectors of Customs, the rate that will serve as a basis for the collection of the tax during the month succeeding the one in which the advice given.

B. —Pure gold, in bars, cones, or in the form of raw ore, fines, smelter residues, or in any other form in which it may be found to be combined or mixed, will also pay seven and one-half per cent of the value of that metal, in Mexican gold or its equivalent in American gold, at the rate of two for one.

Article 2. The tax on zinc ores that are produced in the Republic, or which proceed from foreign countries and which are destined for exportation, will be collected in the following terms;

When its content is 30 per cent., it will pay one peso Mexican gold per ton; or its equivalent in American gold at the rate of two for one, this rate per ton increasing ten centaves Mexican gold or its equivalent in American gold for each one per cent of zinc contained in excess of that heretofore specified.

The expenses of assay and others which are provided for by the relative law are for account of the exporters, without prejudice to the tax on silver and gold which said ores might contain, to which will be applied the taxes marked in the preceding article.

Article 3. The payment of the tax should be made to the principal office of the Treasury Department of the State where said metals are produced, or at the Custom House or Customs Division of importation or exportation of same.

Article 4. The liquidation of the tax and its payment will be shown by a certificate that will be made in duplicate, which should contain in addition, in the case of exportation, all of the data necessary for the identification of the pieces or substances, the name of the Custom House through which the exportation should be made and the term within which it should be done. One copy of the certificate will be delivered to the principal and the other two will remain as vouchers covering the payment, one of them containing the liquidation and the conformity of the principal.

Article 5. Only upon the expressed approval of the office of the Secretary of the Treasury and in each case, under bond, will the payment of the tax be admitted by the medium of drafts, letters of exchange or checks on foreign countries, it being understood that, unless the interested persons obtain said approval, said tax should be collected in cash.

Article 6. With the modification expressed, the Law of the 25th of March 1905 covering taxes and franchises to the mining industry remains in effect.

Transitory Article: This decree becomes effective from this date and will remain in effect during six months; repealing the one of the 24th of December of 1914, issued in the city of Mexico by the Citizen Eulalio Gutierrez.

Given in Monterey, March 19, 1915.

Ferncisco Villa.

[Inclosure 3—Exhibit C.]

[Untitled]

[This is Villa’s decree No. 5, printed as inclosure with Mr. Letcher’s No. 64 of March 27, ante.]

[Inclosure 4—Exhibit D.]

Miners’ letter to the Minister of Finance.

Chihuahua, March 27, 1915.

Sir: We wish to again express most emphatically to you that it is absolutely impossible to comply with your late decree with reference to the mining industry, and that instead of supplementing or modifying the decree as published, we believe it is to the interests of the country at large, and that the mining industry would be better conserved, by repealing this law; and as you stated it was your intention to reach the unscrupulous and speculative class, the proper method would be the enactment of specific laws for that purpose against them, and not such a law as the one outlined, which would react upon the great mining industry at large.

We will again reiterate that the publication of this decree will be taken by the world at large as an important step toward the ultimate confiscation of all property held by foreigners, and regardless of any explanation that may be made as to the extent of the government in exempting various specific cases under certain conditions, it will be felt that the policy of the Mexican Government has radically changed as regards foreign investments; that in consequence the investments of foreigners are not looked upon with favor, and it is certain that foreign capital will not be encouraged by the radical decree just published in a local paper.

Respectfully yours,

• C. R. Watson,
• A. J. McQuatters,
• W. J. Quigley,
  Executive Committee.

[Inclosure 5—Exhibit E.]

Miners’ letter to the Secretary of State.

El Paso, Texas, April 1, 1915.

Sir: As a Committee appointed at a meeting of representatives of many of the principal American mining companies, operating in northern Mexico, we respectfully bring to your attention the decree of General Francisco Villa, issued at Monterey, N. Leon, on March 19, 1915, as published in the Vida Nueva (of Chihuahua) dated March 25th nit, a copy of which we are sending herewith. We enclose also a translation of the decree in full, which is such an extensive modification of the terms under which mining properties may be held in the Republic of Mexico that forfeiture of the great majority of mineral titles is almost unavoidable.

In briefest terms, any of the following may cause forefeiture of mining property:

(1) Non-payment of taxes within the prescribed period.

(2) Voluntary suspension of working of mine for 60 days or more, excepting because of fortuitous circumstances individually approved by the Secretary of Fomento as being of sufficient weight to justify the non-operation of the property.

(3) Abandonment of work.

(4) Deficient exploitation (to be determined by the Secretary of Fomento).

(5) Failure to maintain prescribed work in each five-hectare section (regardless of the practicability of such work or the irregular occurrence of the mineral deposits).

The enforcement of this drastic decree, which is about to be promulgated by the action of a dictator who has assumed the powers of legislation inherent only in a national legislature, will radically change an important fundamental property law, apparently without full knowledge of the serious consequences involved, and, so far as we know, without giving mining interests of the Republic a preliminary opportunity to be heard in this matter which so vitally affects their welfare. Regardless of the many legal questions that might be raised with reference to the enforcement of such a drastic measure, we beg leave to point out to you the injustice that would be worked upon the mining industry of the Mexican Republic at large, and upon the American and European investors in its mining properties in particular.

We maintain that the restrictions imposed by the new law are absolutely unjust and will work great hardship to American investors who, in good faith and at great sacrifice, have acquired mining property in the Republic of Mexico, chiefly during the period when the relations between the United States and the Mexican Republic were amicable and when there was reason to believe that their investments were welcomed by the Mexican nation, and that the security of the same was assured under international law and existing treaties between the two nations. The present decree is evidence that this confidence was misplaced.

As a result of the conditions existing in Mexico during the last few years, both this and the preceding administration of our government have felt constrained to advise foreigners to leave the Republic of Mexico until such time as conditions in the country should render it safe for them to return to their respective business occupations. As a result of this, we believe it is safe to assert that at least 85 per cent of the foreign-owned mining properties in the Republic of Mexico have been closed down and their owners have returned either to the United States or to Europe, feeling that their investments were safe so long as they continued to pay the tax upon their properties as fixed by law, which properties in a great majority of cases have been purchased from Mexicans in exchange for the payment of large sums of money.

American citizens who have withdrawn from Mexico at the urgent request of their own State Department and have been deterred from returning to Mexico by the published warnings of that Department, find themselves in this position: After losing in many instances large amounts of personal property as a consequence of the internal disorder in the Mexican Republic, but nevertheless having paid at considerable cost and sacrifice the taxes imposed by one, and in some cases by two, of the Mexican factions claiming to be de facto governments, these property-owning American citizens are now threatened with the loss of their properties if they do not expend further sums, regardless of profit, in the development and operation of the properties which they hold. They are required to do this, not in the most economical and systematic manner for the development of their property according as the occurrence of the ore dictates, but under an arbitrary and unscientific restriction which requires that for every five contiguous pertenencias of any group there must be an extraction working. From a technical standpoint this is absolutely absurd. The new decree requires such expenditures whether or not an ore body is known to exist and regardless of whether the ore is of profitable grade under prevailing conditions and metal markets.

The decree requires, also, that the scale of operations must be sufficient, and it is left to the discretion of the Secretary of Fomento in the last instance to rule whether or not the extent of operations is sufficient. If he decides that the scale is insufficient he is authorized to declare the title forfeited, and the property subject to denouncement by any individual residing within the Republic.

The mineral agents in the several districts are delegated to act as inspectors and to bring all cases of non-compliance with the new law to the attention of the Secretary of Fomento. This feature introduces opportunities for graft on the part of the mineral agents and opens up an unlimited field of annoyance to mining operators. In view of the fact that under present conditions even well equipped properties with complete operating organizations are unable to operate on a really profitable scale—because of the insufficiency of labor supply and of railroad facilities which render it extremely difficult to secure needed supplies and fuel or to ship the product mined to treatment plants—in the case of most properties, especially those which are isolated or in an early stage of development, it is clearly impossible for the owners to comply with the new decree, and consequently the enforcement of this decree is confiscatory in effect.

In case any developed mines should be forfeited, even temporarily, to the Mexican Government, and by it be delivered to some other individual, it is highly probable that immense damage would result to such mines before the same could be recovered by the original owners after a really constitutional government shall have been established.

This decree is so unjust and harmful to the interests of American citizens who have in good faith invested in mining property in the Republic of Mexico, that we hasten to bring it to your attention, and we beg to request that this matter be given the careful attention which it deserves. Unless the decree referred to can be repealed or annulled, great distress and financial loss will result to individuals and corporations who have already suffered immensely. We therefore trust that you will take appropriate steps under these conditions to safeguard our interests as American citizens.

Yours very truly,

• A. J. McQuatters, Chairman.
• C. L. Baker,
• R. F. Manahan,
  Committee.

[Inclosure 6—Exhibit F.]

Miners’ telegram to the Secretary of State.

El Paso, April 2, 1915.

The undersigned, acting as a committee representing the principal American mining companies operating in northern Mexico, have mailed to you under date of April 1 a communication respectfully bringing to your attention a radical decree issued by General Villa which makes drastic changes in the law under which mining properties may be held in the Republic of Mexico. This communication embodies views of these operators regarding the scope of the decree and points out the great injustice and serious loss which will be inflicted upon American citizens if this decree is put into effect. We trust that the letter will reach you promptly and that after giving it the consideration which it merits you will take such action as you deem appropriate to safeguard the interests of American citizens and of foreigners who have acquired mining property in Mexico.

• A. J. McQuatters,
• C. L. Baker,
• R. F. Manahan,
  Committee.

[Inclosure 7—Exhibit G.]

The Secretary of State to the Miners.

Washington, April 7, 1915.

Reference your letter April first and telegram April 2. Department telegraphing Special Agent Carothers urgently to protest against application provision mining decree March 19 last, to property Americans and other for signers.

W. J. Bryan.

[Inclosure 8—Exhibit H.]

[Untitled]

[This is a copy of Mr. Carothers’ telegram of April 12; see ante.]

1. Inclosure 2—Exhibit B.