The President of the Standard Oil Company of New Jersey ( W. C. Teagle ) to the Secretary of State

My Dear Mr. Secretary: I take this first opportunity since my return to New York to advise you of the course of the discussions at Mexico City between Minister de la Huerta and the Committee of Oil Executives covering the period April 24th to May 3rd, inclusive.

The first purpose of the Committee was to effect a reasonable and permanent basis for the imposition of taxes to take the place of the temporary arrangement which was made when the Committee visited Mexico City in August and September of last year.

Since September, 1921, the total taxes had been increased by the Mexican Government although the selling prices of Mexican petroleum [Page 694] and its products had declined. Our basic position was that there should be a definite relation between taxes and selling prices of the commodities in respect of which the taxes were assessed, and we were successful in convincing the Mexican Government, first, that this theory was sound, and, second, that the tax settlement should be arrived at in advance of Minister de la Huerta’s discussions with the bankers.39

The result of our conferences was an agreement along the following lines, to hold for the period of the present administration:

As to the production taxes, a basis of valuation was agreed upon, using actual selling prices of bunker fuel oil at New York as a criterion and providing for an increase in the rate of taxation, should selling prices advance;
As to export taxes, the arrangement made by the Committee with the Mexican Government on September 3rd, last, remains effective;
The Mexican Government agrees to impose no taxes other than those above mentioned.

With regard to the further development of Mexican petroleum resources, we endeavored to make it plain that the oil industry will have no future in Mexico unless an intensive effort to find new fields of production be undertaken and successfully prosecuted; that such effort cannot be undertaken until and unless the Government shall have completely removed the unusual hazards created by domestic legislation, excessive taxation and unreasonable and unnecessary departmental regulation and supervision, and shall extend to the oil industry its cordial co-operation and encouragement; that a reasonable and permanent basis of taxation must be arrived at in order that the industry may know in advance what tax burdens it will have to bear; that the Government shall recognize that the petroleum companies possess and shall guarantee that they shall enjoy full petroleum rights in the properties acquired by them through private contract with the private owners thereof; that the Government shall recognize that the petroleum companies have full and exclusive rights in any federal zones located within the boundaries of their properties; and that the Government shall guarantee that the industry shall not be hampered by the operation or enforcement of agrarian or other laws, by the imposition of taxes or the exercise of regulatory powers by the states or municipalities of the country.

Provided the Mexican Government would accept the foregoing principles, we indicated our willingness to organize the Petroleum Development Company of Mexico (memorandum regarding which [Page 695] has already been handed you40) and to transfer to it all petroleum rights in about seven hundred thousand hectares of lands heretofore acquired by our several companies and lying outside the zones already developed.

Minister de la Huerta came back with a counter-proposal which contemplated that the proposed new company should be formed; that the Mexican Government put in its rights, whatever they might be, in our lands and we put in our rights, whatever they might be, in our own lands, the stock of the Company to be divided between the Government and the participating companies on some basis to be agreed upon. To this counter-proposal we responded that the basic conceptions of the two plans were diametrically opposite; that our State Department, as well as ourselves, had from the beginning contended that Article 27 of the Constitution of 1917 should not be construed as applicable to the lands which we have acquired through private transactions with the private owners of the land; that we were unwilling either to surrender or to compromise this principle; and that, as the Mexican Government was proceeding from the opposite viewpoint, the Government’s counter-proposal afforded no acceptable basis for an agreement. Minister de la Huerta insisted that the Government’s plan was consistent with the position of our State Department and that the Department could not possibly take exception to it—of which he was, of course, unable to convince us.

It being evident that the Mexican Government was not then disposed to recede from its fundamental position, we prepared to return home, and just as we were leaving the Minister handed us a revised plan, which, however, embodied the same fundamentals which had made the prior plan submitted by him unacceptable.

The foregoing brief statement will give you the high spots of the situation, but you will, no doubt, be interested at your leisure to go over the complete dossier of the trip, a copy of which will follow within a few days.

We take especial pleasure in acknowledging our obligation to Mr. Summerlin, whom we kept constantly advised of the course of the discussions, who showed us every possible courtesy and whose advice was of great assistance to the Committee.

We believe that nothing was said or done during the Committee’s visit which might in any way prejudice the position which the State Department has taken with regard to the Mexican situation as a whole.

Respectfully yours,

W. C. Teagle

For the Committee
  1. See pp. 685 ff.
  2. Not printed.