312.0051/34
The Acting Secretary of State to the Ambassador in Mexico (Daniels)
Sir: The receipt is acknowledged of your despatch No. 4074, dated November 7, 1936, and of your telegram No. 200, of November 19, noon,30 concerning the new law of expropriation which has now been approved by the Mexican Congress and which you state will undoubtedly be immediately promulgated by the President.
[Page 724]An examination of the law seems to disclose that it is not confined to agrarian matters but would give authority to expropriate all classes of property. I refer in particular to Article 1 from which it appears that it covers a large number of subjects having little or no relationship to an agrarian program. Paragraph VIII of that Article indicates that the extension of the right of expropriation has for its purpose, among other things, a distribution of wealth.
Article X of the law fixes, as a basis of compensation for the property seized, the amount declared to the tax or cadastral offices as fiscal value. This obviously is not a proper basis for determining compensation, as decisions of the courts of this country, arbitral tribunals, and foreign offices, have repeatedly held when questions have arisen in the past with respect to compensation to be paid by a government for the requisition of property for public purposes. The basis of compensation is, generally speaking, the fair market value of the property and not the value placed thereon by the owner or the taxing authorities for tax purposes. It probably would seldom, if ever, represent more than the price which might be expected if the property were disposed of at a forced sale. In most instances the value fixed for tax purposes represents even a lesser amount than might be obtained at a forced sale. Apparently the only provision made for appraisal of the property by experts or by judicial processes is that contained in Article X, and that provision is limited to questions pertaining to improvements made or depreciation suffered subsequent to the date of the assignment of fiscal value.
Article XX provides that the authority which carries out the expropriation shall fix the manner and terms in which the compensation must be paid, which shall never exceed a period of ten years. This is very indefinite and would seem to clothe the authority carrying out the expropriation with complete discretion as to the manner and terms in which compensation shall be paid. It might be in bonds, depreciated currency, goods, or other property. Judging from the experiences of persons from whom agrarian property has been expropriated, there is but little reason to hope that the persons affected by this new law would receive just compensation within a reasonable time as no provision is made in the law for the necessary appropriation nor authorizing such an appropriation.
This almost unlimited extension of the right of expropriation, coming as it does at a time when every effort is being made to strengthen the friendly relations between the two governments, and to adjust claims that have arisen over a period of years, many of which are claims for property taken under existing agrarian laws, is indeed unfortunate. It is assumed that the President of Mexico is not desirous of promoting feelings of distrust or apprehension as to the safety of investments by Americans in Mexico.
[Page 725]It is therefore desired that you take up the matter informally and confidentially with President Cárdenas as early as practicable in the sense of the foregoing and express the hope that steps will not be taken to apply this new legislation to American nationals, particularly in the absence of an adequate method for determining and paying just compensation at the time property is taken.
If you perceive objection to taking the action herein suggested, or have in mind some alternative method of procedure, I shall be glad if you will call me by telephone in order that there may be no unnecessary delay in our efforts to protect, as far as possible, legitimate American investments in Mexico and at the same time preserve and promote the good relations between the two countries in consonance with the policy that the Administration is trying to foster.
Very truly yours,
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