File No. 812.512/1888
The Ambassador in Mexico ( Fletcher ) to the Secretary of State
820. Department’s telegram 804, February 27, 7 p.m., and my 806 February 25, 2 p.m., on the subject of new petroleum tax law dated 19th February. Copy of decree was forwarded 27th instant and copy and translation of official text will be sent in to-morrow’s pouch. I am unable to estimate effect new decree will have upon the oil companies, as the larger companies with the exception of the Aguila are not represented here and data as to the leases and lands held by them is not available to me. I am informed however that Pani, the author of the law, estimated that the Mexican Petroleum Co. would have to pay $1,600,000 under it and that said company because of its large contract holdings in fee simple will be the greatest sufferer. I am informed that if the privilege of exacting payment in kind, which Article 3 of the decree provides may be done with respect to 50 per cent of all royalties, is availed of by the Mexican Government, it will mean the withdrawal of about 200,000 barrels of oil per month from ordinary channels. I think it highly advisable that all Allied oil interests adopt identical attitude with regard to this new decree. Representatives of principal English interests, Mr. Bodg and Mr. Ryder, are at present in New York and can be reached through the British Embassy.
I have to-day asked the Minister for Foreign Affairs whether, in view of the suddenness [of] the issue [of] the decree, the complications which are bound to arise in its regard and its far reaching effect generally, the Mexican Government will not only postpone application of this decree 30 days in order that American companies concerned may have had opportunity to study the law. The Minister for Foreign Affairs stated that he could give me no reply without consultation with his colleagues. He said next cabinet meeting would take place next Thursday and by that time at the least he would give me a reply.
The law is vague as to the machinery of collection and it is not clear when the first payment will fall due, although Article 6 is construed by some to provide for the first payment within the first 15 days of March.
[Page 700]The Minister for Foreign Affairs was inclined to think this is not the case, but was also vague. According to Article 17, taxes not paid in the terms fixed by this law shall be subject to a fine of 10 per cent for each month of delayed payment. There is some apprehension that if the taxes should not be paid by the companies, the Government will resort to a refusal of clearance to oil ships in order to compel payment. Should this occur, necessity will arise for concerted and energetic action on the part of the British and American Governments.