Memorandum of Conversations, by the Under Secretary of State (Welles)

After consultation with the President, and after receiving his approval, I had separate conversations with both the Mexican Ambassador and with Mr. Donald Richberg with regard to the oil negotiations.

I reiterated to the Ambassador the statements made to him at the White House yesterday by the President, particularly emphasizing the President’s belief that if the Mexican Government did not now after this very long delay reach an equitable adjustment of the controversy with the American companies, public opinion in this country would be so incensed as to bring about a situation in which the Congress would undoubtedly enact legislation making it impossible for the Executive in the future to purchase Mexican silver. The Ambassador told me that he had already communicated in great detail to President Cárdenas the statements made by the President. I said that it seemed to me that the crux of the situation lay in point one of the counter proposals which Mr. Richberg was to receive from the Ambassador this afternoon, namely, the insistence of the Mexican Government that the boards of directors of the four corporations to be set up be composed in each instance in their majority of Mexican nationals appointed by the Mexican Government, and that the operation of the oil properties consequently be under the sole control and jurisdiction of the Mexican Government. I said it was clear that the companies could not and would not agree to this provision. I said I recognized fully from what the Mexican Government had stated to us that public opinion in Mexico and the official statements of the President of Mexico made it impossible for the Mexican Government to recede from the position it had taken and to return to the American companies the operation of the properties in question, either directly or in some disguised form. It appeared to me, I said, that the time had now come for a definite determination of whether a reasonable and fair solution of this problem could not be found, and in that spirit I was authorized by the President to make the following suggestion:

The formula proposed was for each of the four boards of directors to be composed of nine individuals, three to be appointed by the Mexican Government and three by the American companies; and the remaining three directors to be selected in the following manner: the Government of Mexico and the Government of the United States will agree upon a list of nine individuals to be nationals of neither Mexico, the United States, Great Britain, nor the Netherlands and all to be persons of demonstrated integrity and standing, and of experience [Page 689] either in commerce, in finance, or in the oil industry; the six members of the boards of directors appointed as indicated above would be obligated to select from the list agreed upon by the two governments, within a period of thirty days after the handing to them of the list in question, three individuals who would constitute the three remaining members of the boards of directors. I stated that in proffering this suggestion it seemed to me that if accepted it would enable the Mexican Government to maintain the position it had taken, since the control and management of the properties would not be returned to the American companies, while at the same time it would remove the objection on the part of the companies as expressed to me that the Mexican proposal envisaged complete control by the Mexican Government of management and operation, to which the companies could not agree.

I said that I further suggested that should this proposal be regarded favorably by the Mexican Government and the companies it might be regarded as a solution of a temporary character, say for a two or three-year period, with the hope that once operations had commenced under the plan so proposed, the Mexican Government and the companies by common accord could agree upon a permanent solution.

The Ambassador said that at first glance he could see no reason why this should not be a way out of the difficulty and that he would at once submit it to his Government with the hope that they might accept it.

In my interview with Mr. Richberg I submitted the same formula to him and likewise stated to him that I did so by specific authorization from the President. Mr. Richberg went into the matter very fully, but seemed to me to be laboring very definitely under the belief that the American companies whom he represented felt that the time had come when negotiations with the Mexican Government would ho longer be productive of any useful purpose and that the companies would favor the issuance of a statement to the public giving the entire history of the negotiations with the Mexican Government and stating that they had terminated because of the inability of the companies to agree with the Mexican Government upon any basis of settlement.

I said that it seemed to me that if this were the case the companies ought to recognize certain facts very clearly. I said that it was already rumored in Mexico in many quarters that the companies were unwilling to reach any agreement with the Cárdenas Government, hoping that General Almazán would be elected President of Mexico and that they could make a deal with him whereby control and management of their properties would be restored to them. I said that if the companies now publicly announced termination of the negotiations this belief in Mexico would be very generally strengthened and that [Page 690] the whole oil controversy would become the foremost issue in the campaign and that it undoubtedly would be charged in many quarters that General Almazán had “sold out” to the companies and that the companies were mixing directly in Mexican political affairs. I said that the inauguration of the next president of Mexico was in any event still 18 months off, as the next president would not take office until January 1941, and that in the meantime the controversy which would arise during the political campaign would prejudice, in my judgment, not only every American interest in Mexico, but also very definitely relations between the two countries. I further said, what assurance could the companies have that the next president of Mexico would in fact be inclined to favor their point of view; and if some president of Mexico not favorable to their point of view took office after the very bitter campaign which would undoubtedly be engendered, the companies would in that event be as badly off, if not worse off, than they are now.

So far as the situation in this country was concerned, I said I felt Mr. Richberg was fully aware of the fact that this question might, of course, become a political issue in the United States as well as in Mexico. For all of these reasons I believed, therefore, that it was very desirable that the companies should exercise the utmost amount of patience in the present negotiations and should not close the doors until every effort had been made to try and find an equitable solution which would give them the guarantees they felt were indispensable but which at the same time might prevent the issue from becoming one of a violent, political nature in Mexico.

Mr. Richberg said that he would go to see the Mexican Ambassador immediately after leaving me and that he would then telephone his principals who are not in Washington. He also said he would probably have to attend a joint meeting of the heads of all of the companies in New York within the next two days and that he would see me again either this evening or tomorrow.

S[umner] W[elles]