The Chargé in Mexico (Summerlin) to the Secretary of State

No. 7270

Sir: In confirmation of my telegram No. 21, April 4, 5 P.M.,3 and with reference to your informal instruction dated July 28, 1923 [1922],4 and to previous correspondence, in regard to the proposed Treaty of Amity and Commerce, I have the honor to enclose herewith a copy and translation of Mr. Pani’s informal note dated March 31, 1923, which was delivered to me yesterday by a member of the Protocol Section of the Foreign Office.

I have [etc.]

George T. Summerlin

The Mexican Minister for Foreign Affairs (Pani) to the American Chargé (Summerlin)

My Dear Mr. Summerlin: By direction of the President of the Republic I have the honor to reply to your letter of August 3 of last year with which was enclosed a true copy of an instruction to you from the Secretary of State at Washington referring to my letters of the 4th and 24th of May of the same year.6

This Government is pleased to note that that instruction suggests the possibility of a desirable change of procedure, abandoning the narrow method of signing a treaty of amity and commerce—which as an unavoidable condition precedent to granting recognition to the present Government of Mexico prejudiced the national sovereignty and dignity—for the broad method of an adequate development of the Mexican governmental program which has included and still includes the intention to respect rights legally acquired prior to the promulgation of the Constitution of 1917. In spite of the fact that the present Government of Mexico, from its inauguration, has given continuous proofs of its ability to carry out such a program, yet as the resultant of its policy in this respect was considered unsatisfactory by the Department at the time you sent the letter I am now answering—although satisfactory enough to render the attitude of Department, while maintaining all that was essential, compatible with the only attitude which the Mexican Chancellery has properly been able to assume notwithstanding its great desire to reach an early [Page 524] agreement—President Obregón, respecting the right of others to judge freely the results of his official acts and awaiting, confident in the cooperation of the other federal powers, in the support of public opinion, and the powerful evidence of other facts that would soon have to be added to his political credit, decided to postpone this reply.

Since then, in fact, the Government of Mexico has performed acts of such importance in carrying out its program that they must have an advantageous effect on the solution of the problem of the diplomatic relations of the two Governments—granted the good disposition manifested by both parties—and this, above all, if the present complicated Mexican question be considered a little from the human and not solely from the legal and somewhat commercial standpoint, as it appears to have been considered abroad, without regard to its deep influencing historical causes and the interests of the country itself.

In order to define the present state of the international situation between Mexico and the United States it will be necessary to make a brief examination of the five points contained in the final summary of the said instruction of the Department of State at Washington and which, in August of last year, the said Department presented as obstacles preventing the resumption of normal diplomatic relations between the two countries, namely:

The first point refers to the agreement for the resumption of the payment of interest and the amortization—suspended since the year 1914—of the foreign debt, arranged in New York between the Secretary of the Treasury of Mexico and the International Committee of Bankers. This agreement provides guarantees entirely satisfactory to the holders—mostly Americans—of the bonds, whose value amounts to the large sum of one thousand four hundred million pesos; it includes, further, the return of the National Railways of Mexico to the owning company—of which also Americans are the principal bondholders—and has been ratified both by the President of the Republic and the Congress of the Union and, consequently, is now in full force and effect. This obstacle, therefore, has disappeared.

The second point relates to the negotiations initiated, also in New York, between the same Secretary of the Treasury and the representatives of the principal companies interested in the exploitation of the Mexican petroleum wealth. These negotiations tended toward a special form of financial reorganization of those companies which might guarantee—independently of the respective legislation—their rights and which might facilitate the subsequent development of their interests. The corresponding agreement, which was not [Page 525] concluded, would constitute—from the sole point of view of the guarantees demanded—an unnecessary protection additional to that which the future organic law of article 27 of the Constitution will afford. The lack, then, of this agreement does not necessarily imply the absence of securities for petroleum rights prior to 1917, nor can it constitute, therefore, an international obstacle or difficulty.

The third point deals with the protection of titles legally acquired by American citizens before the Constitution of 1917 was promulgated. This question also will be resolved by the future organic law of constitutional article 27.

The fourth point speaks of the decisions which the Supreme Court of Justice of the Nation has rendered in five cases of amparo of oil companies against the President of the Republic and the Secretary of Industry and Commerce, for acts of retroactive application of constitutional article 27, the presumption being that the said decisions are insufficient to protect all the rights which American citizens may have acquired in Mexico before the year 1917. The Court, naturally, limited its decisions to the concrete cases which gave rise to them and, under this aspect, the result could not be more favorable to the interested companies, since, aside from being duly protected, the second paragraph of the said decisions—emanating from the highest authority in the matter—has defined in an unmistakable manner, as will be seen later, the nonretroactive character of article 27 of the Constitution, in that part relative to petroleum. This obstacle, therefore, is also removed.

The fifth point finally refers to the expropriations carried into effect, without indemnification, for the restorations and grants of ejidos.

The five questions considered in the foregoing lines, consequently, may be condensed—in order to be resolved from the American point of view—into two: The enactment of the organic law of constitutional article 27, and the indemnification for the lands expropriated.

Let us examine these two questions separately.

Regulation of constitutional article 27.—It is obvious that the part of this article which principally interests the Government of the United States is that which relates to the exploitation of petroleum, as much because of what this product signifies as a factor in the industrial development and, therefore, of military and naval power, as of the enormous amount of capital which American citizens have invested or desire to invest in this exploitation.

Firstly, there must be borne in mind the almost fabulous development of the Mexican petroleum industry during the six years that have elapsed during the regime of the nationalization of the products of the subsoil, reestablished by the Constitution of 1917. In [Page 526] 1916, in fact, there were extracted 40,545,712 barrels of petroleum, a production which increased during the period referred to above as follows:

Total production Increase compared with 1916
Year of 1917 55,292,770 barrels 14,747,058 barrels
1918 63,828,326 23,282,614
1919 87,072,954 43,827,242
1920 157,068,678 116,522,966
1921 193,397,582 152,851,875
1922 182,278,457 141,732,745

The Mexican production of petroleum, according to these figures, has increased almost fivefold compared with the maximum recorded before the present Constitution went into effect. This fact demonstrates in a conclusive manner that the new constitutional regime does not place the slightest obstacle in the way of the increase of the petroleum exploitation.

But there is still more. The petroleum industry in Mexico is now estimated at $1,050,532,434.00, a capital which is distributed between the different nationalities interested, as follows:

American $606,043,239.00, or 57.7%
English 354,776,199.00, 33.8%
Dutch 71,197,308.00, 6.7%
Mexican 11,582,405.00, 1.1%
Various 6,933,283.00, 0.7%

This proves, therefore, that to foreign companies—and, among them the American companies—belongs the greater industrial and financial prosperity realized under the protection of the regime of the nationalization of the subsoil.

The figures cited above show even better the absolute lack of justification of the fears felt by the oil men—and above all American oil men—because of the principles which the new Mexican Constitution sustains, if it be remembered that the plan of national reconstruction which served as the banner of General Obregón in the electoral campaign tended to correct the retroactive application of that Constitution which a former government recognized by the White House tried to make with respect to the rights acquired over petroleum deposits. This purpose General Obregón himself, as President of the Republic, has reiterated in numerous statements and realized with acts such as, for example, suspending the operation of decrees issued by that same former government which retroactively regulated constitutional article 27 and which were precisely those which gave rise to petitions of amparo by the companies affected. Furthermore, these amparos remained undecided as long as the regime which issued the said decrees remained in power and, as a proof of the present cooperation in such respect of the other federal powers, the Supreme Court of Justice [Page 527] of the Nation—as I have already said—granted amparo to the companies affected and established the nonretroactive character of the constitutional article which is dealt with in five uniform decisions—in order to constitute judicial precedent—which, in the relevant portion, reads as follows:

“In order that a law may have retroactive effect two circumstances are required: that it apply as to time past and alter the past; and that it damage rights acquired under the protection of other former laws, because this new law is in opposition to them. The latter circumstance, above all, is essential; for even when the laws relate to the past but are nevertheless harmless to rights and do not affect any rights previously acquired, retroactivity does not really exist; and they cannot be the cause of conflicts or be the basis of an amparo.

“These premises being accepted, we must ascertain whether paragraph 4 of article 27 of the Constitution in force, which nationalizes, among other substances, petroleum and all the solid, liquid and gaseous hydrocarbides, is or is not retroactive.

“We must therefore define the meaning of paragraph 4, because, if it is retroactive, there must also be applied retroactively the decrees complained of that have this article as a basis, notwithstanding article 14 of the Constitution; and if this paragraph is not retroactive, then those decrees are contrary to the said constitutional text and fall, as enactments of the ordinary legislative branch, under the terms of the above mentioned article 14 of the new supreme law.

“Paragraph 4 of article 27 of the present Constitution cannot be deemed retroactive, either in letter or in spirit, since it does not damage acquired rights. Not by letter thereof, for it does not contain an express mandate decreeing retroactivity, nor does the wording thereof necessarily convey the idea by implication. Not by its spirit, for it proves to be in consonance with the other articles of the same Constitution, which recognize, in a general way, the ancient principles upon which rest the rights of man and which grant to him ample guarantees, and because if it be held to be not retroactive, it also proves to be in harmony with the principles expressed in the paragraphs which immediately precede it on the subject of private ownership from its inception, as integral parts of the constitutional article 27 itself.

“From all this it is inferred that, in consonance with the rules universally accepted for the interpretation of laws and those imposed by sound logic, it must be held that paragraph 4 of article 27 of our present Constitution is not retroactive, inasmuch as it does not damage former rights legitimately acquired. This precept establishes the nationalization of petroleum and its by-products, as well as that of the other substances to which it refers, amplifying the enumeration that existed in our former mining laws, but respecting the rights legitimately acquired prior to May 1, 1917, the date on which the present Constitution went into effect in its entirety.”

I repeat that this perfect agreement as to the judicial meaning of constitutional article 27 respecting petroleum not merely exists between the executive and judicial powers, but also extends to the legislative [Page 528] power, as this high body has declared in diverse and sufficiently clear forms each time it has referred directly or indirectly to the regulation of this article. In recent days the Chamber of Deputies has again debated a project of the organic law framed by the respective parliamentary committees, has repeated its views in favor of nonretroactivity and has asked the Secretary of Industry and Commerce that he expound the views of the Executive, both views having agreed absolutely. Further, President Obregón has publicly ratified the declarations made by his secretary before the Chamber of Deputies.

On the other hand, it must be admitted that the delay in the enactment of the organic law in question is attributable, above all, to causes outside of the Government of Mexico and derived, unfortunately, from the international question itself. In fact, as extraordinary sensibility towards all that may prejudice or appear to prejudice the sovereignty and dignity of the nation is one of the most striking characteristics of Mexican political psychology, it is clear that, in this respect, the insistence upon the previous signing of a treaty of amity and commerce with stipulations tending to guarantee rights legitimately acquired in Mexico by American citizens as a condition to recognizing this Government, and the correlative incidents connected with such insistence, have undoubtedly restrained the freedom of action of the executive and legislative powers, because their labors in the formation of the said organic law then might appear before public opinion with the false aspect of servile obedience to foreign pressure. It is obvious, then, that not even this involuntary and lamentable delay can justify the actual suspension of diplomatic relations between the two Governments, not only because the friendly act of their renewal would be an efficient factor in the rapid and satisfactory framing of the organic law of article 27 of the Constitution, but also because, without this, the present governmental policy—as has been already demonstrated—fully sanctioned by the highest tribunal of the Republic, far from affecting the rights legally acquired prior to 1917, or hindering the creation of new rights, has permitted a marvelous development of the petroleum interests and, principally, of those of American origin.

Indemnification for expropriated lands.—In this Chancellery’s note of May 24, 1922, a complete exposition was made of the origin of the Mexican agrarian question, the long-drawn-out and laborious evolution of the popular aspiration for its solution and the pressing political circumstances which have contributed to this solution. I shall now limit myself, therefore, to emphasizing on the one hand the point that best justifies the attitude of the Government in this respect, and, on the other hand, the insignificance of the American agricultural interests [Page 529] affected in comparison with those of other nationalities, including Mexican, and in comparison with other interests already satisfied, also American.

Despoiled of their lands by the Spanish conquistadores and encomenderos, plundered during three centuries of colonial regime, gun fodder for another century of civil wars and struggles for independence, and those of three foreign wars—two with France and one with the United States—the poor native population, as if the suffering from all these calamities had not been enough, also suffered, after the partition of ejidos and bienes comundles brought about by the Constitution of 1857, the consequences of the complete absorption of the small landholdings by the large estates which, in accordance with the immoral policy of favoritism of those Few Above at the expense of the Many Below, was developed by the Días oligarchy. It is not at all strange, then, that the aspiration of the people to recover the lands may have been—as has already been said—the most vigorous and persistent of all those which moved the popular Mexican spirit during the last revolution to the point of being rendered into radical laws—and of carrying the revolutionary impulse which engendered it beyond the period of armed struggle, keeping many fires of rebellion lit—justified, on the one hand, by bitter disappointments from governments which, forgetting the promises made in election campaigns, were accustomed to subject the internal policy to the rules imposed by national and foreign capital and, on the other hand, by the inactivity and vacillation shown by the former governments arising from the revolution, as to the recovery of lands—until the present administration succeeded in extinguishing said fires and reestablishing peace in all the national territory, more through the effect of the prompt application of the agrarian laws than by means of military force and shedding of blood. No one doubts that in the face of such a dilemma, the solution adopted was the most humane and economic—despite the inevitable injury to some private agricultural interests national and foreign—because repression by force, of uncertain and transitory results, would have necessarily affected the agricultural, urban, industrial and moral interests of all the country, with its eternal procession of all kinds of evils. This undeniable fact sufficiently justifies the hasty action which the Federal Executive had to resort to in order quickly to restore or grant the ejidos to the towns, taking the lands necessary for this from the surrounding haciendas, even postponing the indemnification for those expropriations and consequently affecting a part of the national and foreign agricultural interests of the Republic; but in comparison with amounts owned affecting infinitely more Mexican properties than Spanish, and four or five times more Spanish than American, etc. Naturally, owing to the haste with [Page 530] which the Government necessarily has had to act, to the end of being certain of obtaining at once the general pacification of the country and of avoiding the greater and truly irreparable damages of civil war, it was not able efficiently to organize the necessary personnel. It is to be remembered in this respect that faulty administrative organization is an evil from which some of the most civilized countries of the world still suffer and that this evil was necessarily aggravated in Mexico as a consequence of the last years of revolutionary anarchy. And in the face of the popular desire for lands, long repressed, the noble enthusiasm, almost explosive, of some agrarians and the machinations of political agitators who found a fertile field for promoting themselves, it was not possible on many occasions for official action to be confined within the limits of strict legality.

The Federal Executive, who honestly confesses the foregoing and sincerely regrets it, feels on the other hand the satisfaction of having reestablished peace in all the national territory, of having solved its principal financial difficulties by renewing the service of the public debt, and of now being able to proceed to the legal indemnification for the expropriations that have taken place—based, as is known, on the value which the owners themselves may have declared to the fiscal authorities, plus the improvements and ten per cent—and to continue his agrarian policy, of which there only remains a minimum to be done in comparison with that already done, by means strictly in accordance with the law and tempered by an ample spirit of conciliation. To this end, President Obregón, in the middle of last month, called a meeting of all the city attorneys and presidents of the local agrarian commissions of the Republic, and, in the opening session, after explaining to them the object of his call and the nature of the legislation in connection therewith, he recommended, in solemn manner, that they bear in mind the following points:

  • “First. To honor the official positions which had been committed to their care, showing the highest respect for the laws and the authorities in the name of whom they acted.
  • “Second. That their character as representatives of the law and of the authorities incapacitates them from assuming the character of political leaders, because it is no longer a matter of serving a political party or of imposing a principle, but of faithfully complying with the law, which is no longer under discussion, and
  • “Third. That, in all those cases in which obstacles are encountered in the fulfillment of their duties, they must ask for the aid and advice of the superior authorities who have appointed them and, in no case, solicit aid from political parties or armed groups.

“The Executive Office in my charge—the President continued—has already shown a frank and firm intention of looking out for the fulfillment of all the laws which govern the country, assuming all the responsibility which pertains to his policy as ruler; but it is necessary, further, that all his collaborators shall keep clearly in [Page 531] view the part of that responsibility incumbent upon them and try, within their sphere of action, to confine themselves in such a manner to the fulfillment of their duty and the law, that they may be proud of it. I beg of you therefore that on returning to your labors you bear in mind my recommendations, endeavoring faithfully to interpret them, in order that your collaboration harmonize with the course which the Federal Executive desires to give to the development of so important a precept. Then we will be satisfied with our work without offering a single target for the arrows of our enemies to whom we should always set up the rule of law as the only barrier.”

Considering, finally, all that which I have explained with respect to the antecedents of the Mexican agrarian problem, of the conditions which have entered into its solution and of the way in which necessarily it has had to be solved, in relation to the damages caused American landowners; considering, also that these damages have avoided others greater and irreparable, and have contributed to the national pacification; that the benefits derived from this fact—not those that will be felt by all the inhabitants of the country, but only those which touch the very persons affected by the agrarian policy—will amply compensate the damages produced; that the Government proposes—and is in a position to carry out this purpose—to indemnify them in accordance with the law, and recalling, finally, the insignificance of the interests involved—until now the claims presented reach 26, while the Spanish claims exceed 100 and the Mexican claims are even greater—in comparison with those of the Foreign Debt, service of which has already been resumed, with those of the National Railway Company of Mexico, restitution of which is already agreed upon, and with the petroleum interests which, despite the harshness with which they were dealt by a former administration recognized by the Government of the White House, and the radicalism which may be attributed to the laws which govern them, have grown and prospered in an extraordinary manner under the protection offered by the present Government of Mexico; considering all this, I repeat, it may be affirmed that the damages to American agricultural properties, as much because of their insignificance as because of the fact that they were occasioned by inevitable and undelayable Mexican needs, if considered, as I said at the beginning of this letter, more from the human than the legal standpoint, they will never justify the systematic resistance, worthy of a better cause, which the Government of the United States has been opposing to the currents of sympathy, without precedent in the history of the two neighboring peoples, created and developed under the protection of the good will of the Government of Mexico and eloquently revealed by the resolutions in favor of the immediate resumption of [Page 532] diplomatic relations between both Governments, presented to the Department of State at Washington by the majority of the legislatures of the States of the American Union and many official and private institutions of that country.

I am [etc.]

A. J. Pani