The Under Secretary of State ( Welles ) to the Mexican Ambassador ( Castillo Nájera )

My Dear Mr. Ambassador: I wish to thank you for your letter of May 26, 1938, setting forth the views of your Government with reference [Page 668] to the payment of compensation for the properties of American citizens which have been expropriated by the Mexican Government. I am deeply appreciative of your having taken the pains of going to Mexico City, in order personally to present to the President and explain to him my letter to you of May 9, 1938, to which your present letter is in reply.

In so far as concerns compensation for American-owned agrarian properties which have been expropriated, I have observed that your Government has in substance reiterated the proposal set forth in the memorandum handed to Ambassador Daniels on April 19 of this year.23 I had hoped that your Government would have progressed in its studies to the point where it could present for the consideration of my Government a definite, practical and complete proposal for making compensation representing fair, assured and effective value to the American citizens whose agrarian properties have been expropriated.

The presentation of such a proposal would have been reassuring and welcome to my Government as tangible proof of the validity of the policy of the “good neighbor”, which has guided the conduct of this Government since 1933. That policy implies a community of neighbors, in which all are conducting themselves on a common plane of mutual confidence and fair dealing. My Government has endeavored to hew strictly to the line of that policy, to respect its own obligations and to be neighborly in rendering assistance where it could do so. It is entitled to expect in return respect for the obligations due it under international law, which, of course, include respect for obligations due its citizens. Other Governments have recognized the inherently reciprocal character of the good neighbor policy and have formulated their policies accordingly. The Government of Mexico has for a long period of time, under its agrarian laws, taken over lands of American nationals and though provision was made in the General Claims Convention of 1923 and subsequent agreements, for the adjustment of agrarian claims up to August 30, 1927, no such adjustment has actually taken place. The valuations of the American properties expropriated since that date, principally those of small holders, with the exceptions hereinafter noted, amount already to $10,132,388.39 in value according to the valuations of American owners, and no provision either for adjustment or for payment has yet been made. The well settled and universally recognized law of nations, while recognizing the right to expropriate, requires payment in cash or its equivalent at the time of taking. The right to take is thus dependent upon the willingness and the ability at that time to pay the appropriate compensation.

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This Government believes it appropriate again to call attention to the inherent reciprocal character of the good neighbor policy. In making this observation, this Government believes that it has exhibited patience and forbearance, and has shown to the Mexican Government all possible indulgence, as well as many practical evidences of its continuing desire to cooperate on the most friendly basis. Yet it cannot adopt a policy of acquiescing in the expropriation by another Government of properties of American nationals in disregard of the principle that expropriation and satisfaction of the obligation to pay go hand in hand. To adopt such a course would not forward the good neighbor policy, which is universal in its application. On the contrary, it would inevitably destroy that policy, by impairing the integrity of the principles upon which it rests. I cannot help but believe that the Republic of Mexico fully shares these views, and so desires to cooperate in the maintenance of the good neighbor policy.

These considerations lead to the conclusion that no further expropriations of American-owned property may lawfully be made unless effective compensation is paid at the time of taking the property.

With respect to the expropriations which have already taken place, subsequent to August 30, 1927, and which, therefore, are not covered by the General Claims Convention, and supplementary agreements, I beg to make the following observations:

During the time that you have represented your Government as Ambassador in Washington, I have described to you on numerous occasions the very serious circumstances in which many American citizens find themselves as a result of the expropriation of their properties by the Mexican Government. The present plight of many of these American citizens arises from their failure to receive the effective compensation due them. It therefore has been heartening recently to have the renewed assurances of your Government’s determination to honor its obligations, past and present, and likewise of your Government’s willingness to negotiate through you an arrangement providing compensation for the expropriated American properties. In this spirit of mutual desire to find a solution for this long-standing problem, I am taking the liberty of laying before you certain suggestions which appear to offer the broad outlines of a settlement, and which I would appreciate your communicating to your Government.

First of all, the plan proposed hereinafter is concerned solely with property affectations of all kinds that have arisen subsequent to August 30, 1927. With respect to the claims that arose prior to that time, it is my Government’s intention to proceed with respect to their settlement in accordance with the provisions of the General Claims Convention, as discussed below.

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As a result of careful study of the data which have been compiled recently, including certain information kindly furnished by the Agrarian Department of your Government, it is estimated that since August 30, 1927 there has been expropriated by the Mexican Government, not including the petroleum properties and certain other exceptions hereinafter noted, $10,132,388.39 of American-owned property. This estimate is exclusive of certain American properties regarding which it is understood settlements either have been made or are in process of negotiation. Should these negotiations fail to reach a satisfactory outcome, it would be necessary, of course, to include the value of the properties concerned in the above estimate. This estimate includes, however, the value of the Yaqui Valley properties which have not yet definitely been dotated.

There is attached hereto an itemized list24 of the American properties that are comprised in the foregoing estimate. This list gives the name of the owner of the property, the name, if any, and location of the property, the number of hectares expropriated, and the value as estimated in each case by the owner. Although an effort has been made to include in this list all of the American properties expropriated since August 30, 1927 (with the exceptions before noted), the absence of certain data makes the list incomplete, and consequently the monthly payment hereinafter mentioned is subject to adjustment. From time to time, as these data become available, they will be furnished to the Mexican Government.

It is suggested that these data be examined and checked for accuracy and completeness by the appropriate agencies of the Mexican Government and supplemented with such additional data as the Mexican Government may consider necessary in order to arrive at an understanding regarding the amount of compensation due in each case. In as much as your Government is already far advanced in compiling data similar to that now submitted, it should be possible to arrive in the very near future at determinations of compensation due. As you know from our conversations my Government believes that both from the standpoint of justice and because of the great need of the majority of the owners, it is imperative that these determinations be made and that payments be started without further delay.

It is further suggested that the amount of compensation together with any subsidiary questions, such as the extent of the area expropriated, be determined by agreement between two commissioners, one appointed by the Government of Mexico, the other by the Government of the United States. In the unhoped for event of disagreement between the two commissioners regarding the amount of compensation due in any case, or of any other question necessary for a determination [Page 671] of value, my Government suggests that these questions be decided by a sole arbitrator selected by the Permanent Commission at Washington provided for by the so-called Gondra Treaty, signed at Santiago May 3, 1923,25 to which both our Governments are parties. In view of our common desire to advance a settlement of this matter, it is suggested that our Governments name at this time their respective Commissioners, and request the Permanent Commission to name concurrently the sole arbitrator.

I have noted that your Government has taken a first step towards providing compensation at least in part for the American-owned lands in the Yaqui Valley, by deciding to lay aside every month, beginning with the month of June 1938, the sum of 120,000 pesos. However, in as much as our two Governments are now engaged in an endeavor to arrive at some satisfactory solution of the problems arising from the expropriation of all American properties, my Government earnestly hopes that the Yaqui Valley lands will not be definitely dotated pending the outcome of the present discussions.

I have also noted that with regard to the other cases of expropriation distinct from those under consideration with respect to the Yaqui Valley, your Government is continuing to compile the data necessary to determine the amounts of compensation and consequently the amounts to be set aside for such payments. Following the lines of our conversations, my Government assumes that these latter amounts will be adequate to effect compensation for all American properties expropriated since 1927 prior to the expiration of the term of office of General Cárdenas. As I have already stated to you orally, my Government cannot admit of the application of any discriminatory principle in this matter, and therefore is unable to accept the differentiation suggested in your letter which was likewise contained in the memorandum of April 19 with reference to large properties or of any differentiation which gives one group of American citizens less satisfactory treatment than another group. Compensation on a basis of fair equality is required for all expropriated American property.

During the process previously outlined, which I am confident you agree should be expedited in every way, and as an indisputable part of the transaction of expropriation and compensation, my Government considers that your Government should set aside monthly for the next thirty months, subject to adjustment as hereafter indicated, the sum of $337,746.27 to be deposited in escrow in some agreed upon depository, for the exclusive purpose of making compensation [Page 672] for expropriated property as and when definite determinations of value have been arrived at in each case. Should the determinations of compensation show a reduction from the amounts now claimed, the monthly deposits would be scaled down accordingly. By setting aside these monthly amounts it would be possible to achieve what I understand to be the objective of President Cárdenas, namely, the payment of compensation to American citizens for their expropriated lands prior to the conclusion of his term of office.

With respect to the views presented by your Government in connection with the petroleum properties, I may state in advance of formal communication, that the general standards regarding compensation expressed earlier in this letter are equally applicable in that case.

With regard to the group of American claims under the General Claims Convention, the position of my Government is that it cannot properly abandon rights conferred on the United States Government, on behalf of its nationals, by the provisions of the General Claims Protocol of 1934. However, since your Government is disposed to discuss the matter of the settlement of the claims, the Department is willing to explore with you the possibilities of such a settlement, it being understood of course that by entering into such discussions this Government does not in any way compromise its position or attitude with respect to its rights under the Protocol of 1934 and that the sole purpose of such discussions would be to determine whether the general ideas of our two Governments are sufficiently close together to warrant any further steps.

At the same time the Department would be glad to be advised what minimum time the Mexican Government would feel it necessary to insist upon for the further discussion of the claims preparatory to the en bloc settlement contemplated by the Protocol of 1934.

I am pleased that Your Excellency agrees with me that by an equitable solution of the problems above mentioned, the bonds of friendship between our two countries will be strengthened, and it is hoped that such solutions may be found in the immediate future.

Believe me [etc.]

Sumner Welles
  1. Not printed.
  2. Not printed.
  3. Foreign Relations, 1923, vol. i, p. 308; see also the General Convention of Inter-American Conciliation, signed at Washington, January 5, 1929, ibid., 1929, vol. i, p. 653, and the Additional Protocol to the General Convention of Inter-American Conciliation, signed at Montevideo, December 26, 1933, ibid., 1933, vol. iv, p. 226.