File No. 812.512/1935

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

No. 890

Sir: In continuation of my No. 815 of March 1 last, and in compliance with the Department’s telegraphic instructions Nos. 895, March 19, and 915, March 26,1 I have the honor to enclose a copy of my note No. 290 of April 2, 1918, embodying the views of the Department and the formal protest of the Government of the United States against the violation or infringement of legitimately acquired American private property rights involved in the enforcement of the petroleum decree of the 19th of February last.

I called upon the Minister for Foreign Affairs on Monday morning, to inform him, as directed by your telegraphic instruction 895, of the instructions which I had received with regard to this decree, and I reminded him that he had informed me in a previous interview that it was possible that some modifications might be made in the said decree. He answered that a circular had been or was being prepared, which would clarify certain features of the decree, but would make no modifications in substance, and that it was the Government’s intention to put the decree into effect. Therefore, as reported in my telegram 925 of April l,1 and as instructed by the Department, I addressed to him the formal protest enclosed.

In this connection, I enclose a copy and translation of the circular issued by the Department of Industry, Commerce, and Labor, dated [Page 713] March 11, 1918, clarifying Article 14 of the decree of February 19 last, to which reference was made in my telegram No. 890 of March 21, the Department’s 936, April 1, and my 925, April 1.

I have [etc.]

Henry P. Fletcher
[Enclosure 1]

The American Ambassador ( Fletcher) to the Mexican Secretary of State for Foreign Affairs ( Aguilar)

No. 290

Excellency: The decree of the 19th of February, 1918, which was published in the Diario Oficial on the 27th of February last, establishing a tax on oil lands and on oil contracts executed prior to the first of May 1917, etc., has been brought to the attention of my Government, and I am under instructions to state to your excellency that my Government has given most careful consideration to the effect which this decree, if carried into operation, will have upon American interests and property rights in Mexico.

The said decree provides for the imposition of certain taxes on the surface of oil lands, as well as on the rents, royalties, and production derived from the exploitation thereof. It is noted also that among the provisions for the collection of such taxes is one requiring that payment in kind shall be delivered to the Mexican Government at the storage stations of the operators. Articles 4, 13, 14 of the said decree seem to indicate an intention to separate the ownership of the surface from that of the mineral deposits of the subsurface, and to allow the owners of the surface a mere preference in so far as concerns the right to work the subsoil deposits upon compliance with certain conditions which are specified. While the United States Government is not disposed to request for its citizens exemption from the payment of their ordinary and just share of the burdens of taxation so long as the tax is uniform and not discriminatory in its operation, and can fairly be considered a tax and not a confiscation or unfair imposition, and while the United States Government is not inclined to interpose in behalf of its citizens in case of expropriation of private property for sound reasons of public welfare, and upon just compensation and by legal proceedings before tribunals, allowing fair and equal opportunity to be heard and giving due consideration to American rights, nevertheless, the United States can not acquiesce in any procedure ostensibly or nominally in the form of taxation or the exercise of eminent domain, but really resulting in confiscation of private property and arbitrary deprivation of vested rights.

Your excellency will understand that this is not an assertion of any new principle of international law, but merely a reiteration of those recognized principles which my Government is convinced form the basis of international respect and good neighborhood. The seizure or spoliation of property at the mere will of the sovereign and without due legal process fairly and equitably administered, has always been regarded as a denial of justice and as affording internationally a basis of interposition.

My Government is not in a position to state definitely that the operation of the aforementioned decree will, in effect, amount to confiscation of American interests. Nevertheless, it is deemed important that the Government of the United States should state at this time the real apprehension which it entertains as to the possible effect of this decree upon the vested rights of American citizens in oil properties in Mexico. The amount of taxes to be levied by this decree are in themselves a very great burden on the oil industry, and if they are not confiscatory in effect—and as to this my Government reserves opinion—they at least indicate a trend in that direction. It is represented to the State Department that the taxation borne by the oil fields of Mexico very greatly exceeds that imposed on the industry anywhere else in the world. Moreover, it would be possible under the terms of the decree, in view of the fact that the Mexican Government has not storage facilities for the taxes or royalties required to be paid in kind, by storing the same in the tanks of the operators, to monopolize such storage facilities to the point of the practical confiscation thereof until emptied by order of the Mexican Government or by the forced sale of the stored petroleum to the operators at extravagant rates.

It is, however, to the principle involved in the apparent attempt at separation of surface and subsurface rights under this decree, that my Government desires to direct special attention. It would appear that the decree in question is an effort to put into effect, as to petroleum lands, paragraph 4 of Article 27 of the Constitution of May 1, 1917, by severing at one stroke the ownership of the [Page 714] petroleum deposits from the ownership of the surface, notwithstanding that the Constitution provides that “private property shall not be expropriated except by reason of public utility and by means of indemnification.” So far as my Government is aware, no provision has been made by your excellency’s Government for just compensation for such arbitrary divestment of rights nor for the establishment of any tribunal invested with the functions of determining justly and fairly what indemnification is due to American interests. Moreover, there appears not the slightest indication that the separation of mineral rights from surface rights is a matter of public utility upon which the right of expropriation depends, according to the terms of the Constitution itself. In the absence of the establishment of any procedure looking to the prevention of spoliation of American citizens and in the absence of any assurance, were such procedure established, that it would not uphold in defiance of international law and justice the arbitrary confiscations of Mexican authorities, it becomes the function of the Government of the United States most earnestly and respectfully to call the attention of the Mexican Government to the necessity which may arise to impel it to protect the property of its citizens in Mexico divested or injuriously affected by the decree above cited.

The investments of American citizens in the oil properties in Mexico have been made in reliance upon good faith and justice of the Mexican Government and Mexican laws, and my Government can not believe that the enlightened Government of a neighboring Republic at peace and at a stage in its progress when the development of its resources so greatly depends on its maintaining good faith with investors and operators, whom it has virtually invited to spend their wealth and energy within its borders, will disregard its clear and just obligations toward them.

Acting under instructions, I have the honor to request your excellency to be good enough to lay before his excellency the President of Mexico, this formal and solemn protest of the Government of the United States, against the violation or infringement of legitimately acquired American private property rights involved in the enforcement of the said decree.

Accept [etc.]

[File copy not signed]
[Enclosure 2—Translation]

Circular No. 5 of March 11, 1918, relative to the taw on petroleum lands and petroleum, contracts1

In order that parties interested may give due compliance to the provisions of Article 14 of the decree issued on the 19th ultimo by the Constitutional President of the United Mexican States, relative to the tax established on petroleum lands and on petroleum contracts having for their object the lease of lots for the exploitation of petroleum and other hydrocarbons which may exist in the subsoil, this Department makes known to the companies and persons interested in the petroleum industry that the declarations they are obliged to present within the period and under the conditions indicated in Article 14 of the said decree, shall be made in triplicate, on unstamped paper, and shall contain the following information:

general data

1.
Name of the company or person;
2.
Residence; city, street, and number;
3.
Present board of directors;
4.
Representative or person empowered to transact business with the Department of Industry, Commerce, and Labor.

properties owned

5.
Location, giving name, number of the lot, hacienda, municipality, canton or district, and State;
6.
Date of acquisition;
7.
Area;
8.
Seller;
9.
Price of purchase;
10.
Plan or description of boundaries, indicating the names of surrounding lands and of their owners.

lands under lease

11.
Location, giving name, number of lot, hacienda, municipality, canton or district, and State;
12.
Area;
13.
Plans or description of boundaries, indicating the names of surrounding lands and of their owners;
14.
Owner, of land;
15.
Date on which the owner of the surface made the lease;
16.
Date on which the declarant made the contract;
17.
Length of contract;
18.
Rental, dominion, and other conditions.

The companies or persons, either the present exploiters or the last concessionaires of the right to exploit the subsoil of the leased lands, who should not present their declarations within the period indicated in Article 14 of the decree to which the circular refers, shall not be allowed to perform any work thereon, and shall be caused to suspend such work as they may have been doing on the lots covering which they may not submit declarations; this without prejudice to the imposition of the penalties stipulated by the said decree.


Secretary,
A. J. Pani
[rubric]
  1. Not printed.
  2. Not printed.
  3. Diario Oficial, March 18, 1918.