612.003/713
The Ambassador in Mexico (Daniels) to the Secretary of State
[Received January 26.]
Sir: I have the honor to report that as soon as I learned that the Minister of Hacienda43 had issued a decree44 increasing tariff duties, I wired the fact to the Department (telegram 14 of January 19, 7 p.m.)45 and sent by night letter an analysis of the increases which was prepared by Mr. McLaughlin, Acting Commercial Attaché. Further reports with reference to these tariff rates were prepared by the office of the Commercial Attaché and wired to the Department of Commerce with the request that copies be furnished the State Department.
I had heard no intimation that the tariff schedules were to be altered and therefore the news was as great a surprise as it was a matter for regret.
Yesterday I went to see Mr. Suárez, Minister of Finance, and asked about the increases and the reasons therefor. He said that when he was in Washington discussing the financial situation of Mexico with Secretary Hull and Undersecretary Welles, he had mentioned the probability that Mexico might be forced to take such a regrettable step in order to stabilize the peso. He said he told them this stabilization must be done at any cost. I asked Mr. Suárez whether Mr. Hull agreed to the increases in the tariff. He said “No”, and I gathered the contrary, but Mr. Suárez said he had assured Mr. Hull that if the necessity should present itself the change would be temporary and the rates would be restored at the first possible moment. “It is temporary, and as soon as prices are readjusted and exchange is on a firmer basis, I shall restore the duties as formerly,” he added.
The obvious outcome will be an increase to Mexican consumers of all articles purchased abroad, and as over sixty per cent of all purchases made by Mexicans from other countries comes from the United [Page 774] States, this change will work the greatest injury to our country. It will not, however, affect purchases made by the Mexican Government from the United States, as no duties are assessed on such articles. The Government is a large purchaser of machinery of all kinds from our country, eighteen locomotive engines having been recently purchased from American companies.
On the same day I had called on the Minister for Foreign Affairs46 and told him of my feeling that these tariff increases were contrary to the declaration of the Buenos Aires Conference47 and that they raised instead of lowered trade barriers, contrary to the spirit of the resolutions of the Pan American Conference. General Hay informed me that he was not familiar with the details of the tariff changes and suggested that I discuss the matter with Minister Suarez.
Before I talked with Mr. Suarez I requested the Acting Commercial Attaché to go to Hacienda and obtain all possible information. He did so, and made the following report about his conversation on both the oil and tariff situation:
Accompanied by Assistant Trade Commissioner Miles Hammond I had a very cordial interview at twelve noon with Licenciado Eduardo Suarez, Secretary of the Treasury.
I told the Minister that American business interests have shown much concern over the tariff decree made public on the 17th and 18th of this week through publication of the decree itself in the Diario Oficial of December 31, 1937. I advised him that particular concern had been evidenced as to merchandise already in transit at the time the decree was made public knowledge. The Minister told me that he has given instructions to the Customs Department to permit the entry under the old tariff rates of merchandise which had left ports of exit on or before January 17th. The Minister said that it was with great reluctance that he had increased duties and that he only did so following a discussion of the necessity with Secretary of State Hull. He assured me that the duty increases are entirely temporary and that if economic conditions in the country warrant it, he will request the Congress in March to lower the duties again back to the old rates, if possible. The reason ascribed by the Secretary for the present tariff increase is his desire to prevent the inflow of large quantities of merchandise. He stated he will lose a considerable amount of revenue as the result of the increase in duties. He has observed that prices in the United States have shown a tendency to decrease as have, in his opinion, prices in other countries. On the other hand, prices in Mexico, the Secretary states, are firm with a tendency to increase. He believes that during the next few months and by discouraging imports, prices will tend to equalize themselves.
[Page 775]I asked the Minister if his view of “better economic conditions” contemplated a prior settlement of the present oil difficulty.48 He said that it did and that he had every reason to believe that the oil difficulty might be satisfactorily settled within the next few days. He said that the Government at present is discussing with petroleum officials the amount of the bond to be filed and that he thought the amount would be determined within a day or two. He said that from that point on the matter would be in the hands of the Supreme Court for determination.
The Secretary also advised me that he has prepared a bill to be submitted to the Congress in March, which will for all practical purposes do away entirely with the three per cent income tax on manufacturers shipping merchandise into Mexico. He said that depending on economic conditions this tax might be changed to a form of customs tax and might be reduced to as low as one per cent. I asked him if Mexican corporations with purchasing agencies or affiliates in the United States would be permitted to deduct from their Mexican income tax the payment of whatever amounts might be invoked as a result of the elimination of the three per cent tax as at present applied. He said that he could give me no information on the subject other than that such a set-off was under consideration.
In connection with our discussions of the petroleum situation the Secretary advised me that the present production of the Governmentowned Administración Nacional de Petróleo is 13,000 barrels per day and that within four more months the production would be 26,000 barrels per day. The Secretary added that by November he anticipated the daily production of Government petroleum would be 40,000 barrels a day. He said that much of this latter would come from the Poza Rica field as the result of the Government’s agreement with El Aguila. Apparently El Aguila intends to go through with its Poza Rica contract. This, the Secretary intimated, it would have to do in any event in order to retain its concessions. The Secretary seemed very much satisfied with the present operations of the Administración Nacional de Petróleo and the services of certain American experts employed as drillers. In connection with the Treasury Department’s interest in petroleum equipment, the Secretary volunteered the information that he thought funds would be available through Stewart and Company of New York at any time he might wish to obtain them.
The Secretary’s program for the betterment of economic conditions in Mexico appears to involve, judging from his statements, first, the reduction of imports; second, the encouragement of domestic industry and production of articles of necessity at low prices; and third, the enlarging of the volume of production of Government petroleum—this, of course, for export purposes.
I shall keep the Department posted as to the workings of the tariff changes and the oil situation.
Respectfully yours,
- Eduardo Suárez.↩
- Approved December 30, 1937, Diario Oficial, December 31, 1937.↩
- Not found in Department files.↩
- Eduardo Hay.↩
- Resolution XLIV, Equality of Treatment in International Trade; Resolution XLVI, Restrictions on International Trade, Report of the Delegation of the United States of America to the Inter-American Conference for the Maintenance of Peace, Buenos Aires, Argentina, December 1–23, 1936 (Washington, Government Printing Office, 1937), pp. 240, 242.↩
- See pp. 720 ff.↩