812.6363/2956
The Chargé in Mexico (Boal) to the
Secretary of State
No. 5036
Mexico, July 15, 1937.
[Received July
17.]
Sir: I have the honor to refer to my telegram
184 of July 10, 6 [5] p.m., and to enclose for
the Department’s information a copy of a memorandum which I sent to
Licenciado Beteta on July 12, and also a memorandum of my conversation
with him on July 10.
It seems obvious that the Mexican Government is determined to levy a
heavy tax on petroleum production in Mexico, to be taken in kind,
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and that, anticipating that
the companies might restrict their production still further as a
counter-move, they expect to couple with this tax provisions which will
make it mandatory upon the companies to exploit as fully as practicable
the petroleum land which they hold under concession.
In effect, the proposed tax—as reported in my telegram 179 of July 7, 3
p.m.—is intended to bring about a benefit to the Mexican Treasury
somewhat similar to the loan which the Minister of Finance originally
attempted to secure from the oil companies, with the difference that the
contribution would be a continuing process from year to year.
There seems to be no doubt that the Mexican Treasury is in dire need of
funds to meet the expenditures incidental upon the Mexican Government’s
program of public works, agrarian reform, etc. This primary need of the
Treasury is probably the driving force behind the Government’s
determination to obtain a greater part of the profits from oil and to
make sure that these profits will be substantial.
It is possible that this attitude is strengthened by some belief that, in
the event the Government should take over oil properties, it can obtain
the necessary technicians and advice to enable it to develop the fields
and sell the oil, not only in Mexico but also abroad.
The Mexican Government is obviously considering accomplishing its
objectives by means of administrative measures rather than by new
legislation. As a matter of fact, there would appear to be little actual
difference between a presidential acuerdo setting
up administrative provisions and a decree-law, except that the petroleum
companies, in the case of the former, might have—in theory at least—more
legal recourse to the courts for amparo, etc.,
than in the event new legislation is created to govern the situation.
(See our despatch 2642 of June 12, 193557—last paragraph of enclosure.)
As reported in my telegram 185 of July 14, 1 p.m., the Government’s
investigation of the Huasteca Petroleum Company in connection with its
labor difficulties (see my despatch 4954 of June 26, 193757) has apparently turned up some
indication of tax evasions on products from the Cerro Azul fields.
Action against the company is apparently to be taken, and it is
conceivable that this may operate as a lever to cause the company to
accede to the Government’s wishes in royalty and production matters.
It may be of interest to note that yesterday Mr. Bradbury, representing
the Gulf Oil Company, through Consul General Stewart made an appointment
to call on me today, and at the same time indicated to the Consul
General that he understood that the American petroleum companies
primarily interested in Mexico were asking the Department to formulate a
strong protest to the Mexican Government with regard
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to the present position of American
companies with interests in Mexico.
Respectfully yours,
[Enclosure 1]
Memorandum by the American Chargé (Boal) of a Conversation
With the Mexican Under Secretary for Foreign Affairs (Beteta)
Following the receipt of the Department’s telegram 134 of July 9, 5
p.m., 1937, and after talking with Mr. Tanis at the Department by
telephone, I called this morning at 11:30 on Licenciado Beteta at
the Foreign Office.
I told Licenciado Beteta that the American newspapers had carried
stories of the new petroleum decree which I had mentioned to him for
some days, but the publicity conveyed the impression that the new
decree would alter the state of affairs resulting from the
conversations between Ambassador Morrow and the Mexican Government.
In view of the large number of American investors in the petroleum
industry in Mexico, this report could not fail to have
repercussions, and I thought it would be helpful to both Governments
if we could know precisely whether the Mexican Government is indeed
planning to change this state of affairs and in what way and to what
extent.
Licenciado Beteta said that he would speak quite informally and
personally, as he usually had in the past. He appreciated, of
course, the situation and was, as always, anxious to cooperate.
However, the Mexican officials were apt to be very susceptible and
might easily draw the inference from any inquiry that our Government
assumed some right to dictate the conditions under which the
petroleum industry should operate in Mexico, even though nothing of
the kind were in mind. They always felt that it was up to them to
defend themselves against any charge that they were too open to
influence from our Government. He knew, he said, that the President
was inclined to feel this way.
I said that I understood this difficulty, but that what I had in mind
was simply that where the interests of a considerable number of
citizens were affected either Government would be interested in
knowing what was on the way. Such an attitude was in harmony with
the maintenance of good understanding and should operate to prevent
the feeling that surprise measures were apt to be sprung at any
moment by one Government which might affect its relations with the
other. To make my point clear to Licenciado Beteta, I asked him to
consider what the reaction here would be if some important
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measure vitally affecting
extensive Mexican interests were taken by our Government without the
slightest previous knowledge of the Mexican Government. I told him I
always assumed that it would be best to envisage difficulties which
seemed to be arising before they became acute, with a view to seeing
where we were going before irrevocable positions were taken and an
issue was created. Relations between the United States and Mexico
had improved steadily in the past few years and I thought that
everything possible should be done, informally if necessary between
the two Governments, to protect the progress achieved.
Licenciado Beteta said that he quite agreed that relations had never
been better, and he certainly realized the benefit to both
Governments that this situation constituted. However, he doubted
whether our Government would be willing to let the Mexican
Government know what laws it might have in preparation affecting
Mexicans until those laws had actually been enacted. For instance,
in the realm of State legislation, he felt that laws which might be
contemplated by the Texas Legislature which would affect the status
of Mexicans there would never be made known to the Mexican
Government until they had become effective.
I expressed some surprise at this. I said that both in State
Legislatures and the Federal Congress projects of laws were publicly
introduced and were available in published records usually for a
considerable period before they were enacted. The discussions of
these projects on the floors of the legislative bodies was also a
matter of public record. Thus, any foreign government had ample
opportunity to study the proposed legislation and there had been
many instances when such governments had seen fit to present their
views on pending legislation to the State Department.
I pointed out that in Mexico, however, legislation by decree could be
and often was enacted with no knowledge of the terms of the
legislation being made public until the law actually became
operative. The recent decree nationalizing the railways was an
example of this type of “surprise legislation”.
Licenciado Beteta said that he realized the force of the point I had
made. He thought, however, that in tariff matters in the United
States nothing was known ahead of time and the expression of views
of foreign governments was not welcomed by our Department.
I said that although I had no recent data, I was under the impression
that, informally at least, foreign governments had often expressed
themselves regarding tariff questions, and that even discussions of
tariff matters had taken place. Tariff adjustments were often the
result of public hearings.
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Licenciado Beteta said: what about treaties? Treaties with foreign
countries which might affect a third country were often kept
confidential until the treaty was promulgated.
I replied that in that instance perhaps we were on somewhat different
ground, since the negotiation of a treaty involved another
country.
Licenciado Beteta said: yes, he realized that treaties were not
properly comparable to domestic legislation.
He then added that he had never been quite clear in his mind as to
just what the Morrow agreement involved and asked what my views on
this matter might be.
I told him that it was my understanding that Ambassador Morrow and
the Mexican Government had been faced with certain difficulties
regarding the status of the holdings and operations of the petroleum
companies in Mexico in which there was an American interest, and
that steps had finally been worked out by which these difficulties
were settled on what was supposed to be a definite and permanent
basis.
Licenciado Beteta said: yes, that was his understanding, and that he
was under the impression that the legislation now being considered
would upset this settlement and therefore change the agreement. He
himself was in sympathy with such a change. He did not believe that
any understanding should be eternal and in the present case it was
important, he thought, to prevent the petroleum companies from
making a “reserve” of Mexico, instead of exploiting Mexico’s
petroleum wealth to its full capacity. He said he had knowledge of
an agreement which had been made some years ago in Rurope between
the petroleum companies, limiting the amount of petroleum which
might be exploited in Mexico. Accordingly, Mexico was being kept as
a reserve instead of being developed. This he thought was contrary
to the best interests of the Mexican people and steps should be
taken to prevent it. He said, however, that he believed the
projected oil decree was not immediately to be brought out, but
would await settlement of the labor difficulties of the petroleum
companies (I presume he meant the investigation being conducted by
the Federal Board of Conciliation and Arbitration No. 7, which is
supposed to reach a finding by July 29th).
He then said that if I would write him a brief memorandum of inquiry
based on the press reports, he would take the matter up with the
President and would endeavor to put it in such light that there
would be no feeling that we were claiming any right to dictate
Mexico’s legislation, but rather in the light in which I set it
forth to him—to see whether the President would be willing to advise
us of what was in mind. He said, rather significantly, that of
course the President might be reluctant to give us information on
measures which might be changed, thus unnecessarily giving us
concern.
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[Enclosure 2]
The American Embassy
to the Mexican Ministry for Foreign
Affairs
Memorandum
Press reports appearing in the United States give the impression that
a new Decree regulating the petroleum industry in Mexico is about to
be promulgated and that this Decree will not be in harmony with the
settlement of various petroleum questions reached with Ambassador
Morrow.
In view of the extensive financial investment of a great many
American citizens in certain of the petroleum companies in Mexico,
such reports are apt to have considerable repercussion, and it would
be helpful if the Embassy were in a position to inform its
Government as to the accuracy of such reports and the nature of such
steps as may be contemplated.
