Papers Relating to the Foreign Relations of the United States, 1918

File No. 612.119/1076

The Ambassador in Mexico ( Fletcher ) to the Secretary of State

No. 819

Mexico , March 6, 1918 .

Sir: Amplifying my telegrams, the last of which was numbered 823, March 5, 1 p.m., on the subject of the negotiations between the United States and Mexican Governments with reference to reciprocal modification of export restrictions on foodstuffs, gold, etc., which were transferred from Washington to Mexico City, I have the honor to enclose a translation of the formal statement given to the press yesterday by the Secretary of Government, Mr. Aguirre Berlanga, to the effect that the Mexican Government disapproved the tentative arrangement concerted by Messrs. Bonillas and Nieto with Messrs. Rowe and Strauss of the United States Treasury Department and myself with respect to gold exports from the United States to Mexico. I also enclose translation of a news dispatch published in the Universal, praising Mr. Nieto for the successful discharge of his commission in the United States, as well as an inspired editorial in the Pueblo—the Government organ—attacking the Universal for publishing a dispatch of this kind and generally for that paper’s friendly attitude towards the United States.¹

Mr. Nieto, smarting under the rebuff and criticism of the statement given out yesterday by Aguirre Berlanga, to-day publishes in full the report he submitted to the President of his negotiations in the United States, translation of which I also enclose. Mr. Nieto’s report contains a correct statement of the progress of our negotiations, and his reasons for recommending the gold export arrangement tentatively agreed upon.

It was very evident soon after our arrival in Mexico—on the 23d of February—that Nieto’s handling of the negotiations did not meet with the approval of President Carranza and his Cabinet—especially Aguirre Berlanga and Pani—who have done everything possible to discredit Nieto and Bonillas and force the former to resign as Sub-secretary of the Treasury. In fact, the publication of the various articles enclosed is due largely to this internal political quarrel. Rumors of Nieto’s resignation have been current for the past ten days and the Democrata to-day openly calls upon him to resign.

I had no official knowledge as to how the Mexican Government regarded the negotiations. The Minister for Foreign Affairs, General Aguilar, informed me, after the meeting of the Cabinet last Thursday (February 28), that he would continue the negotiations with me, but did not indicate in any way the Mexican Government’s position on any point, and the publication yesterday of the rejection of the tentative gold arrangement was the first knowledge I had on the subject.

I called on President Carranza this morning and went over the main points of the negotiations. He said he had named a committee of the Cabinet, headed by Aguilar, to continue the negotiations and that he expected that I would receive their propositions in writing to-morrow or the next day, and that he would prefer future negotiations be carried on in writing although, of course, personal conferences between the Mexican commissioners and myself and McCarty representing the Food Administration and the War Trade Board, would be advisable and necessary. He referred to our gold export restrictions as hampering Mexico and said he could not understand why Mexico could not receive in gold her ordinary trade balances in the United States; that Mexico sent practically everything she produced to the United States and that she was not permitted to receive in exchange either goods, food, or gold; that unless Mexico could receive the things she needed and the balance in gold in exchange, it seemed hardly worth while to continue exportation; and that if the restrictions on exports of machinery, food, and the other articles which Mexico could not now procure were removed, there would be little demand for gold as there would be little, if any, trade balance in favor of Mexico. In reply I told him that while I could not speak definitely on this subject, which was one entirely in the hands of our Treasury Department experts, I felt sure we could reach a satisfactory arrangement as to trade balances, but that the great bulk of the gold for which Mexico is now asking export license is in the shape of credits transferred from England resulting from the liquidation of Pearson’s Tehuantepec contract, and is not properly speaking an American transaction, and I explained that England and all our other Allies and most neutrals had entered into credit arrangements with us which had obviated the necessity of gold transfers. I also fully explained to him the Food Administration’s position as to the price of henequen attempted to be fixed by the Comisión Reguladora, and I also referred to the labor shortage in the United States and the desirability of reaching an arrangement whereby Mexican laborers could cross the frontier; that this would relieve Mexico of the necessity of feeding these idle men and that proper guarantees would be given as to their non-enrollment in our Army. I also informed him that the labor and immigration authorities of the United States were disposed to relax the United States immigration restrictions as far as Mexicans were concerned. The President seemed well disposed on this subject. My statement I based on information received from Mr. McCarty. I respectfully request the Department to take this matter up with the proper Departments so that I may be in position to give definite assurances when we shall reach this point in the negotiations.

I have [etc.]

Henry P. Fletcher.

[Enclosure 1—Translation]

Statement to the Press by the Mexican Secretary of Gobernación (Berlanga)

Mexico , March 5, 1918 .

Since the initiation in Washington of the conversations relating to the exchange of foodstuffs and other merchandise between Mexico and the United States, the American press and some Mexican newspapers have been falsely informing the public regarding the course of the said conversations, and since their conclusion they have continued to assert that they were a success. As, unfortunately, such has not been the case, but on the contrary, upon the memorandum being submitted to the Cabinet for consideration, the President of the Republic and the members of the Cabinet for many grave reasons disapproved unanimously of each and all its clauses, and in order that the nation may be protected from such deceit and that all citizens may have knowledge of the proposed clauses, the memorandum of what has erroneously been called the Lansing-Nieto pact—since the former did not intervene in the matter to which this note refers—is now published. Notwithstanding the fore going, the negotiations are being continued in connection with the said exchange of products, for which purpose the President has decided to handle it directly, having appointed a commission from the body of the Cabinet to study the new propositions to be submitted to the American Government, which propositions shall in due time be presented to it by the Department for Foreign Affairs through that Government’s Ambassador, his excellency Mr. Fletcher.

The text of the draft agreement referred to reads as follows:

MEMORANDUM OF AGREEMENT

As a result of the conferences held between Ambassador Fletcher, Assistant Secretary Rowe and Mr. Albert Strauss, representing the United States, and Ambassador Bonillas and Subsecretary Nieto, representing Mexico, the Mexican commissioners make the following suggestions:

1. The Mexican Government desires to be permitted to export from the United States $10,000,000 in gold, out of the credits that the Mexican Government may have in its favor within the United States. This amount shall have as a main object to serve as a reserve of the Banco de la República Mexicana, which shall be open for business on April 1. The Banco de la República Mexicana will issue bank notes which will be receivable for all taxes or other Government charges.

2. The Government of Mexico will arrange with the Government of the United States so that when the $10,000,000 of gold above referred to shall have been exported from the United States, any additional funds accumulating to the credit of the Mexican Government within the United States shall be dealt with by adopting an arrangement similar to that recently concluded between the United States and Argentina. Briefly, this arrangement provides for the deposit with the Federal reserve banks of amounts accumulating to the credit of the Governments, such amounts in the Federal reserve banks being treated by the Mexican bank as a part of its own reserve. In this way, the Banco de la República Mexicana will be placing itself in the same position as the Argentine Government has placed itself and as the banks in the United States are doing by treating credits with the Federal reserve banks as a part of their reserves. Against deposits to its credits with the Federal reserve banks by parties in the United States, the Mexican Government will deliver in Mexico notes of the Banco de la República Mexicana to the nominees of the parties making such deposits, at the rate of two pesos Mexican for one dollar United States.

3. In regard to credits so accumulated with the Federal reserve bank for the credit of the Mexican Government, and in excess of the $10,000,000 to be exported as set forth above, the Mexican Government desires the assurance of the United States Government that no obstacles will be interposed to the export of the balance of such account in gold, after ratification of a treaty of peace ending the existing war.

Whenever the amount to the credit of the Mexican Government, under the arrangement outlined in paragraph 2, shall have reached a total of $20,000,000, the Mexican Government reserves the right to discuss with the American Government an arrangement looking to licenses for the exportation of amounts in addition to those now agreed to out of any amounts that may thereafter accrue in excess of the $20,000,000.

4. The Mexican Government will repeal the existing laws or decrees that compel the reimportation into Mexico of an amount of gold equivalent to the amount of gold contained in ores exported from Mexico, as well as the requirement which provides for the importation into Mexico of an amount of gold equivalent to 25 per cent of the gold value of any silver bullion exported in ores. The Mexican Government shall not make any distinction between the American money either in gold or bank notes; but the Mexican Government shall retain the right of receiving in payment of taxes only Mexican money or bank notes of the Banco de la República Mexicana. Should currency of the United States be accepted at any Mexican customhouses or Government offices, it shall be accepted at par less such moderate charge as will cover the estimated cost of shipping such currency to the Federal reserve bank at Dallas for credit of the Mexican Government.

5. Under this arrangement, it will be the policy of the United States to refuse all requests from private parties to export gold, and to deal only with the Mexican Government in respect of such exports.

6. The Government of Mexico represents to the Government of the United States that no gold is now permitted to be exported from Mexico, and that it will not permit such export except to the United States unless some urgent Government need should require such export, and then only for limited amounts.

7. The Mexican Government desires assurances that between now and April 1, the date on which the Banco de la República Mexicana will open for business, that it, the Mexican Government, will be permitted to export from the United States up to $5,000,000 in gold, out of such credits as the Mexican Government may accumulate in the United States. The above assurances as to exports covers the total requirements of Mexico for the export of gold. In other words, the said total of $5,000,000 covers all exportations, whether for Government account or for private individuals. It shall be understood that these $5,000,000 are apart, and shall not be considered as included in the $10,000,000 referred to in paragraph 1 of this memorandum.

[Enclosure 2—Translation]

Report of the Mexican Undersecretary of the Treasury (Nieto) as published in “El Universal,” March 6, 1918

The instructions which, in very general terms, I received from the President relative to the elimination of the difficulties which have occurred in connection with our foreign trade with the United States, were in the sense that the American Government should grant the free exportation to Mexico of certain articles necessary in the economic life of the Republic, principally foodstuffs, machinery of all kinds, iron and steel manufactures, machinery and material for railways, articles for the operation of mines, copper, zinc, arms and cartridges. As regards the exportation of metallic gold from the United States to Mexico, it was considered equitable that the Government of the United States should permit the shipment to Mexico of gold sufficient to cover our commercial credit balance.

In exchange for the American Government acceding to these demands, the Mexican Government would continue to permit the unrestricted exportation of articles produced in Mexico for export.

Before initiating negotiations with the American Government, Mr. Bonillas and I amply discussed the possibility of making an arrangement on these bases; but in view of the information furnished by Mr. Bonillas regarding the conditions under which the American Government is handling such matters with other nations, allies and neutrals, we realized that a general and definite treaty on the basis of a free commercial exchange was, for the time being, practically impossible, and for this reason we decided to handle the question with the idea of postponing to a more propitious time, negotiations for a reciprocal commercial treaty, considering that, for the moment, all that could rationally be negotiated would be that the United States should permit the exportation to Mexico, for a short period of time and in fixed quantities specified beforehand, of the foodstuffs and other articles necessary to our economic existence.

The intention of Ambassador Bonillas and of the undersigned was that such an arrangement of a merely transitory and provisional nature should momentarily alleviate the existing difficulties, awaiting a better opportunity for discussing a treaty of reciprocity more ample and just. Therefore, and in general terms, we fixed with reference to food products, quantities which we considered sufficient until the new crops were gathered, and with regard to other articles, amounts sufficient for several months. As to metallic gold, we considered that the initial amount asked for would also cover for several months the amount of our commercial balance.

From information furnished by Ambassador Bonillas it was found that, on account of the requirements of the war, the United States could not dispose, in the matter of foodstuffs and other various articles requested by the Mexican Government, of even the quantities indispensable for its own needs; furthermore, it has practically resulted that the American Government has not granted to any country whatsoever, allied or neutral, the free exportation of food products or of any other article which they consider necessary for the war. In effect, not only neutral countries, but the allies of the United States as well, are under the necessity, with regard to the exportation of such merchandise, of fulfilling all the ordinary requirements; it is necessary that a license be requested in each instance, which, after examination by the appropriate Department, is granted, denied, or modified.

Therefore, and bearing in mind that for the present it would be almost impossible for the Government of the United States to extend to Mexico in this respect better treatment than that given to its allies, Ambassador Bonillas and I considered proper to handle the problem in the provisional and transitory form to which I have referred. And we thought best to discuss the matter on this basis, bearing in mind, naturally, that the President and his Cabinet could, opportunely, reject, approve, or modify the results of our preliminary conversations.

In view of this, and as a result of the ideas exchanged in our first interview with the officials of the American Government, we presented two memoranda,¹ one relative to the exportation of gold, and the other referring to the exportation of food products, machinery, and other articles.

In our memorandum regarding gold we limited ourselves, by reason of certain pertinent considerations, to requesting for the time being, the shipment to Mexico of $15,000,000 in metallic gold. In the said memorandum we did not specify any obligation on the part of the Government of Mexico, and in it we made special mention of the possibility that present difficulties for the importation of gold to the Republic might oblige the Government of Mexico to adopt certain defensive measures which, without being in the nature of reprisals, might result prejudicially for the United States; for example, in the case of the Mexican Government being constrained to put into effect certain restrictions in exports to the United States unless advance payment in metallic gold were made for the merchandise. We also called attention in the memorandum to the fact that the exportation of gold from Mexico is prohibited, and that the Government of Mexico would hold to its purpose of not releasing any of the metallic gold at its disposal, excepting in such cases as make it absolutely indispensable to ship metallic specie abroad as the only means of making certain payments.

Taking this memorandum as a basis, we initiated the discussion with Ambassador Fletcher and with the representatives of the Department of the Treasury. These officials emphasized the fact that the simple granting of a permit for the exportation of $15,000,000 would not solve the problem because, in view of the difference in the value of imports and exports, the difficulties would in a short time commence again, adducing, further, that the United States is greatly interested, in benefit of both countries, in the stabilizing of the exchange rate.

The American commissioners thereupon proposed that, besides granting a permit for the exportation of the $15,000,000, and for the purpose of avoiding new difficulties in the near future, an arrangement be made similar to that which had been concluded at about the same time between the Governments of Argentina and the United States. We agreed that they should present to us a memorandum of such an arrangement, including this last proposition, and for that purpose, they submitted for discussion a new memorandum. Although in this document it is stated that the proposals are made by the Mexican commissioners, it was, in reality, the result of the discussion, interpreted and drawn up by the commissioners of the American Government.

Ambassador Bonillas and I amply discussed this memorandum, proposing some modifications thereto, which were taken into consideration, the result of this discussion being a new memorandum which was also drawn up and submitted to us by the American commissioners. Ambassador Bonillas and I accepted, in principle, this last form of arrangement, subject, naturally, to the consideration of the President.

This project provides, speaking generally, that the American Government shall permit, at once, the shipment of $15,000,000 in metallic gold, to Mexico; that the amounts in excess of this sum which may result to the credit of the Mexican Government in the United States shall be deposited in the Federal reserve banks in favor of the Government of Mexico; that the deposits which interested parties, who desire to do so, may make for account of the Mexican Government in the Federal reserve banks, shall be payable in the City of Mexico in bills of the new bank of emission, at the rate of two for one; that the said deposits shall not be withdrawn from the United States until the termination of the present war, the American Government being obligated to permit the shipment to Mexico in metallic gold of the balance which, upon the conclusion of peace, may result to the credit of the Government of Mexico; that upon the said deposits exceeding $20,000,000, new arrangements will be made with a view to exporting at once to Mexico further sums in metal; that the Government of Mexico shall make no distinction between the metallic dollar and the paper dollar, but without any obligation to accept this money in any class of payments; that the decree of September 27, last year, shall be canceled, wherein the provision is made for the reimportation to Mexico of a certain percentage of exports of silver and other metals; and, lastly, that exports of metallic gold shall not be made to other countries, excepting in cases of absolute necessity for the Mexican Government.

In my opinion, this project of an arrangement is even more advantageous for Mexico than is the agreement which Argentina has entered into with the American Government.

In effect, Mexico can import at once $15,000,000, while for the present no metallic gold shall be shipped to Argentina. The Argentine Government shall leave on deposit in the Federal reserve banks until the termination of the war, $40,000,000, while the amount fixed for Mexico is only $20,000,000. Furthermore, the contract with Argentina provides that, if the amount of $40,000,000 is insufficient, it shall be increased, whereas the project discussed with the Mexican commissioners provides that if the deposit exceeds $20,000,000, the immediate importation of further metallic sums to Mexico shall be discussed anew.

I desire to mention that, while the draft agreement between Mexico and the United States contains the cancelation of a decree by the Government of Mexico, the agreement made with Argentina provides for the issuance of a law by that Government.

In my opinion, the projected agreement, financially speaking, and considering the critical conditions existing in the world market, is to Mexico’s interests. This arrangement would normalize, to the extent that the present difficult conditions will permit, the utilization of our foreign commercial credits with the United States, until the present crisis is terminated.

The only serious obligation on the part of the Mexican Government consists in the establishment of a gold deposit in the United States until the end of the war. This, in my opinion, and without losing sight of the existing abnormal conditions, can be objected to only from a point of view of desirability in connection with international policy, but I shall not discuss this point as it is without my jurisdiction. I do, however, desire to emphasize that, in my opinion, the dignity and decorum of Mexico would not suffer in the least in accepting such an arrangement, inasmuch as it would only be practically accepting the consequences of the present world crisis, as have Argentina and other nations; greater ills are avoided, and an endeavor is made to secure the greatest advantage possible out of conditions so difficult and abnormal.

Economically, the advantages to Mexico, while not as great as might be desired, are all that could reasonably be expected during the present world crisis. The stability in exchange, while primarily being advantageous to the United States, would indisputably avoid in Mexico the harm caused by variations in foreign exchange, and our export industries would obtain large benefits therefrom immediately.

As regards the condition that gold shall not be exported from Mexico to other countries, such prohibition has already existed for several years, and it is now more important than ever that Mexico should not release its metallic reserves.

The cancelation of the decree of September 27, last year, is also to Mexico’s advantage, until such time as an agreement is made with the United States. As a matter of fact, during the few months the said law has been in force, it has been found that it is more beneficial than harmful to the large foreign companies, which have influence in the United States for obtaining permits to export gold, whereas it has resulted prejudicially to small mining industries, which do not enjoy such influence or have not the means of securing the permits required.

It might be argued that the United States is obligated to pay to Mexico, in gold, the amount of our commercial balance; but compliance with this objection could only be forced by Mexico by prohibiting the exportation of our products unless advance payment were made in metallic gold, and such a ruling would create serious international difficulties.

All nations who at present have a trade credit balance have accepted the situation frankly, and in all nations, debtor or creditor, the exportation of gold is at present absolutely prohibited. Furthermore, we should take into account that in past years, during many decades, our foreign trade invariably showed a debit balance, and we never considered ourselves obligated to pay the difference in metallic gold, accepting thereby the consequences of a depreciation of our money.

I desire to state that in drawing up the memorandum referred to, certain matters were considered in the discussion which are of the exclusive competence of the Government with reference to its interior affairs; but these points were mentioned only for the purpose of elucidating the discussion. It is clear, therefore, that they should not be taken into consideration in drawing up an agreement in its final form.

From the start of the discussions relative to the shipment to Mexico of food products and other articles, the American commissioners gave preference to the discussion of the price of henequen, considering this point as decisive for the success of the negotiations. The American commissioners took the stand that the price of the said fiber had been increased immoderately by artificial means. As Mr. Bonillas and I had no information regarding Yucatán matters, we sent for the agent of the Reguladora in New York, who informed us of the recent arrangement made between the American Government and the Reguladora de Henequén for the purchase and sale of this fiber, in which a price on the fiber was fixed at $0.19 a pound at Gulf ports. We stated to the American commissioners that inasmuch as an agreement already existed on the subject, it should not be discussed anew; but they then informed us that the arrangement with the Reguladora had not been ratified by the Food Commission and that it had not even been brought to the attention of the Director, Mr. Hoover; that the agreement had not passed beyond Mr. Requa, a minor employee of the Department, and that, even though the said arrangement should be considered valid, the American Government would avail itself of the provision therein contained that the agreement would be subject to immediate cancelation merely by the notification of same given by one of the parties.

In view of this attitude of the American commissioners, and after discussion with the New York agent of the Reguladora, Mr. Bonillas and I decided to request the American commissioners to submit a definite proposition. This was made in a memorandum in which the request is made that the price of henequen be fixed in relation to the increase in the price of corn in the United States, taking as a comparison the present price with that of normal times. On this basis, and according to the American commissioners’ statement, the price of henequen would be $0.13.38 per pound. After Mr. Bonillas and I had discussed the matter with the Reguladora agent, we agreed that, with a view to facilitating negotiations, the price of henequen should be reduced to $0.17½ per pound, this price being subject to the approval of the Reguladora, with the understanding that a satisfactory arrangement would be concluded relative to the shipment of food products and other articles to the remainder of the Republic, and the shipment would be permitted to Yucatán of the same amount of merchandise as was imported in normal times. The American commissioners made a new proposition fixing a price for the fiber of $0.15, and agreeing to the shipment to Yucatán of merchandise in the same proportion as in normal times, with the exception of wheat and its derivatives and war material. They offered, furthermore, to encourage the consumption of henequen in the United States and abroad. Attention should be called to this last point, inasmuch as at present the American Government prohibits the exportation of henequen and articles manufactured therefrom, and this signifies a large decrease in the consumption of the article. The discussion remained at this point, to be continued later in the City of Mexico.

With regard to our proposition for the shipment of foodstuffs and other articles to Mexico nothing in reality was discussed other than matters relative to foodstuffs and railway materials. As regards foodstuffs, the American commission was in accord with permitting the shipment to Mexico of 3,000,000 bushels of corn, and as regards wheat and flour, they absolutely refused to allow shipments to be made, inasmuch as, according to their statement, they could dispose of only a part of these articles which they required for their own consumption. They offered, on the other hand, to permit the exportation of rice in the same quantity as requested of wheat and flour.

With regard to railway material, indicated in the list furnished us by the purchasing agent in New York, they consented, in general terms, to permit the exportation, with certain minor differences, but no definite decision was reached on this point.

The American commissioners did not reach a decision regarding the exportation of the remaining articles contained in our list, nor with regard to our request for the immediate and provisional exportation of corn and flour, awaiting the definite result of the conferences.

This was the status of the negotiations which were to be continued in Mexico City.

I desire to state that, in the course of the negotiations, no point of international policy was touched upon in the slightest degree.

I also desire to state that neither Ambassador Bonillas nor I gave out a single notice to the American press regarding the negotiations. The news published in the United States and transmitted to Mexico was furnished to the press of that country by officials of the said Government. I desire also to state that my information to the press of Mexico was limited to a statement that the negotiations had not been concluded, and that they would continue here; the other data published by the press of the Capital must have been taken from information given to the American press by officials of the American Government.

I never considered that my humble efforts, united to the valued assistance of Ambassador Bonillas, should be crowned with complete success; on the contrary, we both feared strongly that due to the difficult circumstances and the delicate problems of international policy involved, which might be affected by such an arrangement, our conversations might be variously judged, and considered inacceptable or deficient. In any case, and as I am far from possessing the slightest degree of amour propre, undesirable when our great problems of international policy are concerned, I desire only, in submitting this report to the President and to the Secretaries of State, that it be recognized beyond all question of doubt, that my only purpose, within the bounds of my limited abilities, has been the welfare of my country.

R. Nieto

Mexico , February 28, 1918 .

[Subenclosure—Translation]

MEMORANDUM

The restrictive measures imposed by the American Government in regard to the exportations of gold into Mexico, have produced and will continue producing grave injuries to economic interests of both countries.

Considering Mexico alone, the injuries it suffers can be summarized in the following manner:

1. The economic crisis suffered by Mexico during the last years has actually caused, among other things, a radical change in the monetary system and imposed upon the Government of Mexico the necessity of devising new systems for the development of which it is absolutely necessary to have in reserve certain amounts of cash, especially in gold, and these amounts can not be obtained in Mexico or any other country except the United States. The impossibility of importing this reserve is now the only obstacle to the realization of the plans formulated.

2. The financial agency which the Mexican Government has established at El Paso, Texas, has as its principal object the concentration of all funds normally collected in other offices dependent on the Mexican Government situated in the northern region of the Republic. The amounts thus concentrated have to be distributed directly among other offices in order to satisfy the continued and numerous needs of the civil as well as the military administrations. The cash remittances which the said office has to make to Mexico are only immediate reexportations of funds received from Mexico and do not in any way affect the bullion reserve in the United States, which fact was taken into consideration when imposing restrictive measures upon such exportations.

The prohibition of said shipments places the Mexican Government in the position of being unable to meet necessary demands, many times of urgent importance, and in many cases the impossibility of meeting such demands may be of transcendental importance in the pacification of the country and in the complete establishment of normal administration.

3. The high value of silver has resulted in silver coin pesos being accumulated and gradually withdrawn from circulation. The Mexican Government has a reserve of this species of coin, and it is natural that it should exchange them for gold which would be used in the new coinage. As this exchange can only be made in the United States, all action of the Mexican Government is at a standstill on account of the restrictions which make it impossible for Mexico to import the gold which would be the result of this exchange. Consequently the silver peso coins referred to remain in Mexico without being employed in any way, which is most harmful, as one of the most serious difficulties of the situation arises from the scarcity of currency.

On the other hand, the United States, besides inevitably suffering through reflection the effects of any serious economic conditions in Mexico on account of the close ties of interests between the two countries, have been resenting the effects of a situation which they have created through their own restrictive measures, especially the depreciation of American paper money which is a primary result of the difficulty existing in Mexico of exchanging these bills for gold. The removal of the obstacles which now impede the shipments of gold into Mexico would bring as an immediate result the new valuation of American paper money.

The difficult situation confronting the Mexican Government on account of the impossibility of obtaining gold from the United States might cause it to adopt certain defensive measures which in no way would be considered as reprisals, but would be prejudicial to private interests of the United States. For example, the Mexican Government might be obliged by the circumstances to make effective certain restrictions on the exportation to the United States of silver and several other articles, unless the full value were received in advance and in gold coin. This measure, which would be of great detriment not only to American but also to Mexican interests, would nevertheless be less harmful for Mexico than the present impossibility of obtaining the gold to which it has a legitimate right as the price for the articles it exports.

In view of the above-named reasons, it seems evident that the restrictive measures relating to the exportation of gold to Mexico should be modified. This arrangement seems quite clear, since it should be noted that if the interchange of metals is reestablished freely, the quantity of bullion exported from Mexico to the United States would be greater than that which the United States could send into Mexico. This statement is clearly proven by data taken from the statistics of former years.

The Government of Mexico, precisely on account of the abnormal conditions which confront it, could not make excessive use of the facilities it would be given to import bullion. The sum of $10,000,000 would be really quite sufficient for the present to cover its needs in gold.

With reference to the exportations which would be made through the financial agency in El Paso, Tex., the peculiar character of which has already been explained, they would be increased in the next five months to the sum of $5,000,000; that is to say, at the rate of $1,000,000 a month.

Since one of the scruples of the United States concerning the exportation of gold is based on the fear that these shipments would be reexported to other countries and eventually reach the Central Empires, it is necessary to explain here that the Mexican Government has no intention of getting rid of its gold reserve nor of allowing that now in the Republic to be taken out, except in cases in which, due to difficulties caused by the world crisis, the only means of making certain payments would be the shipment of specie abroad. It is to be presumed, on the other hand, that such payments would not involve shipments of great importance, if it is taken into consideration that due to the same crisis which exists in the country, neither the Government nor individuals are in condition to enter into transactions which would mean large expenditures for them.

From the point of view of international commerce, one of the effects that the war has produced in Mexico is the isolation in which she has remained as regards Europe, and it can be assured that at present the only possible market, for exportation as well as for importation, is that of the United States.

In the first period of the war, that is, before the United States entered into it, the disturbances in Mexico’s foreign commerce were not very perceptibly felt, except those caused by the suspension of the export trade with Germany, which were suspended from the very beginning of the conflict. Those exportations were principally coffee, tobacco, dyewoods, zacatón root, etc. After the United States entered the war, these commercial disturbances were extremely intensified, not so much as concerns the exportation trade, for this has been carried on without interruption on account of the remarkably liberal customs policy which the Mexican Government has followed, but concerning the importations from the United States which have been reduced in a very notable way, as a consequence of the restrictions imposed by the recent American legislation on exports to Mexico.

Mexico has continued sending to the United States, without limitations of any kind, commodities which are very important for war purposes, such as oil and its derivatives, all kinds of metals, especially copper, zinc, and antimony, and several minerals very much required for manufacturing articles for war uses, henequen, rubber, guayule, hides, cattle, sheep, etc. All these exportations are carried on at the present time without any restriction, so far as quantity is concerned, and if some modifications have been made to the corresponding duty tariffs, they are merely from a fiscal point of view and not as a measure for restriction. Concerning cattle, for example, which is of indisputable importance in the southern states of that country, the changes made on the export taxes have not signified increase of any kind, as it can be assured that the taxes now paid are the same as those which have been paid for the last three years.

The United States, on the contrary, have restricted, and even more, have forbidden altogether in some cases, the exportation into Mexico of certain commodities which, if they were always very necessary, are still more so now under the present circumstances, as the effects of the economic crisis through which the country has recently passed are still being felt. Among these commodities, the first one is corn, which is very little used in the United States, while in Mexico it is of urgent necessity, as it constitutes the principal food for farm laborers and the needy class of the cities. Also the United States Government has thought it convenient recently to place an extreme restriction on the exportation into Mexico of gold and silver, which are indispensable for the reestablishment of its normal economic life As it seems that the intention of the American Government in decreeing such measures is to avoid all possible reexportation to the enemies’ countries, we may say that in the case of Mexico such reexportations are from every point of view impracticable on account of the paralysis of trade, not only with the Central powers, but also with the neutral countries of Europe through whom merchandise could be reexported.

As there does not exist, therefore, any effective restriction on the part of Mexico for exportations into the United States, of those commodities which are of vital importance in these present times, and there being on the other hand, on the part of the United States Government, a great number of limitations and even prohibitions to export into Mexico many commodities which, while not needed for war purposes in the United States, are absolutely needed by the inhabitants of the Republic of Mexico, even for its Government, and which will serve only to satisfy internal and many times pressing needs, it becomes convenient for both Governments to come to some reciprocal agreement based on the good and friendly relations existing between them, and also in order to establish equity in customs relations.

The principal points of such an agreement would consist, on the one hand, of the United States modifying certain export restrictions as regards Mexico and, on the other hand, of the Mexican Government agreeing not to alter its liberal tendencies in the actual custom policy, as regards exportation into the United States of such Mexican articles which are necessary for private concerns of the United States or its Government.

The suggested agreement, of which the matters of form, extent, and time will be discussed during the negotiations, in conformity with mutual interests, could be developed along the following lines:

I

The United States Government will permit the exportation into Mexico of the following articles, subject to the requirements agreed upon during the negotiations:

• Corn. (It is calculated that before the next crop is picked, about three million bushels will be needed in Mexico. For the State of Yucatan special arrangements will have to be made.)
• Wheat. (Three thousand tons are required for a period of four months.)
• Wheat flour. (Five thousand tons in the same period.)
• Cotton fiber. (Five hundred tons are needed.)
• Cotton seed. (Five hundred tons are needed.)
• All kinds of machinery, especially agricultural and mining machinery. (For these kinds of machinery it must be taken into consideration that its importation into Mexico is indispensable for the production of metals and other articles which are considerably exported into the United States. As to the quantity, it can not be calculated beforehand, but the Mexican Government will take care of examining and approving or disapproving each of the applications made by private importers.)
• Electrolytic copper in wire and cable for private industries and the Government. (Five hundred tons will be needed.)
• Articles manufactured of iron and steel. (The same observation as made for ordinary machinery.)
• Machinery and railway materials, including that which is used for repairing locomotives and cars. (The same observation.)
• Articles required for working the mines, especially cyanide, dynamite, capsules and fuse. (The same observation.)
• Coke for the iron and steel foundries. (As to these commodities, it may be observed that their exportation into Mexico is indispensable for the production of iron and steel which is mostly exported to the United States. The quantity now required can be calculated at about twenty thousand tons.)
• Arms already in stock in the United States and which may not be used by the American Government. (These importations will only be made by the Government of Mexico. The quantity of arms desired to import, as soon as they can be had, will be twenty thousand.)
• Cartridges. (The same observation as for arms. The quantity now required is ten millions.)
• Zinc in bars or plates. (It is calculated that one thousand tons need to be imported at present.)
• Newsprint paper. (Five hundred tons will be needed.)
• Soap. (It is calculated that two thousand tons will be needed for a period of six months.)
• Jute sacks. (Three million sacks will be needed for the first harvests of wheat and corn.)
• Ferromanganese. (Two thousand tons will be needed for the foundries of the country, the products of which are exported largely to the United States.

II

The Mexican Government, on its part, will permit exportation into the United States, of the following commodities during the time and in the form agreed in the negotiations, without increasing disproportionately the actual export duties:

• Henequen and other fibers.
• Metals.
• Minerals (copper, zinc, lead, antimony).
• Hides.
• Oil and all its derivatives.
• Rubber.
• Guayule.
• Cattle of all kinds and their products.
• Woods of all kinds.
• Dyewoods.
• Zacatón root.
• Chicle.
• Other tropical products.

1. Neither printed.
1. The two memoranda referred to were published in El Universal, as a single memorandum. See post, p. 612.