812.6363/2956

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

No. 5036

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, [Page 653] 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 [Page 654] to the present position of American companies with interests in Mexico.

Respectfully yours,

Pierre de L. Boal
[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 [Page 655] 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.

[Page 656]

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.

[Page 657]
[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.

  1. Not printed.
  2. Not printed.