812.6363/6001
The President of the Standard Oil Company of New
Jersey (W. S.
Parish) to the Secretary of State
New York, August 10,
1939.
Dear Mr. Secretary: I am addressing you in
behalf of American interests represented by Mr. Donald E. Richberg in
recent negotiations with the Mexican Government.
Ever since the forcible seizure of foreign owned oil properties by the
Mexican Government on March 18, 1938, the owners of these properties [Page 691] have protested the illegality
of this seizure. The American, British and Dutch Governments have all
made clear to the Mexican Government in separate but harmonious protests
that such a taking of private property without making prompt, assured
and adequate compensation to the owner is simply confiscation and cannot
be justified as a legal expropriation, under established principles of
international law, or indeed, even under Mexican law.
More than sixteen months have passed during which the Mexican Government
has furnished ample and convincing evidence not only of its inability,
but also of its unwillingness to make any genuine compensation for the
properties taken. Even its intermittent assertions of an intention
eventually to offer long deferred, inadequate and uncertain payments,
have been coupled with qualifications and counterclaims so absurd as to
make the assertions a mockery instead of a promise of justice.
The oil companies, on the other hand, have faced the realities of the
situation and have recognized the political and economic difficulties
embarrassing the Mexican Government. Without waiving their legal rights
they have sought to find a method of amicable settlement through which
the Mexican Government might achieve honorably its aims in regard to the
oil industry and might advance the welfare of its people in the
effective development of Mexican oil resources.
A practical program was developed late in the year 1938. The objectives
of negotiations were stated, and were accepted by the companies and the
Mexican Government, with the full knowledge and approval of the
Department of State of the United States. The five stated objectives
read as follows:
“An arrangement under which there will be:
- (1)
- Provision through the medium of a long term contract
for the operation by the respective companies of
properties taken, in accordance with the terms of the
contract free from restrictions, claims or obligations
not embodied therein.
- (2)
- A fixed schedule of rates definitely determining all
taxes and similar payments to be made during the life of
the contract.
- (3)
- A reciprocal guarantee, for the life of the contract,
of reasonable and workable labor conditions.
- (4)
- An appropriate measure and means of reimbursement for
losses sustained by the companies to date of contract by
reason of seizure of properties on March 18,
1938.
- (5)
- Upon expiration of the long term contract all claims
and interests of companies in producing properties in
Mexico to be released and transferred to the Mexican
Government without payment of any further
consideration.”
Through conferences between President Cárdenas and Donald R. Richberg,
representing the companies, in Mexico City in March and in Saltillo in
May, a thorough understanding was established regarding [Page 692] the basic principles which must
underlie the proposed long term contracts in conformity with the
foregoing objectives. But when it appeared that a substantial agreement
upon major principles had been reached tentatively in Saltillo on May 3,
and that an expert negotiation of the detailed provisions of contracts
would be next in order and should be undertaken at an early date, a
sudden change took place in the attitude of the Mexican Government.
After a long and unexplained delay, and then a patient resumption of
discussions with the Mexican Ambassador in Washington, a letter was
received by Mr. Richberg on July 11 (dated July 5) setting forth the
position of the Mexican Government in such a way as to nullify the
results of the previous negotiations. Whereupon Mr. Richberg wrote to
the Mexican Ambassador on July 17 stating his conclusion that since the
efforts previously made to arrive at an understanding had been
abandoned, further negotiations appeared to be useless. A copy of this
letter, which is hereto attached, was transmitted promptly to the
Department of State of the United States as an explanation of the
breakdown of negotiations.
As the result of subsequent discussions between the State Department and
the Mexican Ambassador Mr. Richberg was advised that the Mexican
Government had under consideration a new proposition which the companies
would be asked to consider in the near future. While courteously waiting
this development the oil companies and Mr. Richberg have been surprised
to read articles in the newspapers purporting to reveal proposals
supposedly proceeding in part from Mr. Richberg, which neither he nor
his clients have ever made or would consider making.
It seems therefore necessary to state quite plainly that the oil
companies have not authorized, nor has Mr. Richberg undertaken, the
discussion in their behalf of any proposal which does not conform to the
objectives originally written as the basis for the discussions between
Mr. Richberg and the Mexican Government. Nor has anything happened since
the letter of Mr. Richberg, dated July 17, which would change the
conclusion stated therein.
It becomes necessary accordingly, to report to the Department of State of
the United States that the companies have found it impossible to arrive
at an agreement with the Mexican Government for adjusting equitably the
controversy arising out of the forcible seizure of these properties.
Obviously it would not be appropriate for the Government of the United
States to undertake—and it is not being asked to undertake—negotiations
to determine the amount or method of paying a compensation which the
Mexican Government confessedly is both unable and unwilling to pay. It
is appropriate, however, in the present situation again to request the
Government of the United [Page 693]
States to call upon the Mexican Government to return to the possession
and control of American citizens their properties which have been
unlawfully seized and held by the Mexican Government, and to call upon
the Mexican Government to recompense the owners of these properties for
all damages and losses resulting from that unlawful seizure and from the
subsequent exploitation of these properties by the Mexican
Government.
We think it would be also appropriate for the Government of the United
States to remind the Mexican Government that the companies are not to be
regarded as suitors for favor but as associations of injured American
citizens who have been despoiled of rights acknowledged wherever
civilized people are engaged in peaceful commerce among nations.
We believe that we have kept the Department so fully informed of the
progress of these negotiations that the Department now understands how
patiently and conscientiously we have striven to find an early and just
solution of this controversy.
Respectfully yours,
[Enclosure]
Mr. Donald
Richberg to the Mexican Ambassador
(Castillo
Nájera)
[Washington,] July 17, 1939.
Dear Mr. Ambassador: I have received and
given careful consideration to your letter from Mexicali dated July
5, 1939, in which you state the position of the Mexican Government
and propose a settlement of the oil question based in part upon the
Modified Memorandum of June 18 which you submitted to President
Cárdenas.
Before receiving your letter I had felt that, through discussions
with President Cárdenas in Mexico City and in Saltillo and
subsequent discussions with you in Washington, we had reached a
fairly clear understanding of the essentials of any agreement which
could be acceptable to the oil companies and the Mexican Government.
The propositions advanced in your letter of July 5 depart so far
from such an understanding that in reviewing them briefly I find it
necessary to restate the essential positions taken by the oil
companies in the efforts made to reach an agreement.
We have heretofore agreed upon the desirability of long-term
contracts between the Mexican Government and each of the groups of
companies in which would be consolidated the interests of each
specified group of investors, but it was certainly understood that
the Corporation being formed by investors would represent their
interests [Page 694] and be a private
industrial enterprise. Obviously, it would not be a Government
corporation since it would enter into a contract with the government
for the development of oil properties created, and to be expanded,
by investors of private capital. Therefore, the proposal that a
majority of the Board of Directors and the President of the Company
should be Mexicans appointed by the Mexican Government (which is
made in your letter of July 5) is wholly inconsistent with the
entire theory and purpose of our discussions. Such a corporation as
you propose would be essentially a Government corporation to which
private investors would be expected to contribute money and property
without any such control as would justify such private
investment.
The suggestion made in the Memorandum of June 18 that a majority of
the Board of Directors should be Mexicans raised the immediate
question, when this Memorandum was subsequently presented to my
clients, that such a Board might be assumed to be under the control
of the Mexican Government instead of under the control of the
stockholders who elected it. The reasonableness of this criticism is
now borne out by the proposition bluntly presented in your letter of
July 5 that the President and a majority of the Board should be
appointed by and under the control of the Mexican Government. I have
repeatedly pointed out to you and to President Cárdenas that private
investors would not think of contributing their money and property
to a Government-controlled corporation since this would mean simply
lending money to the Government.
I am compelled to call your attention again to the basic principle
under which these negotiations were undertaken which was stated in
the memorandum of objectives which were adopted as the foundation
for the negotiations which began on March 8 in Mexico City. This
first principle read as follows:
“Provision through the medium of a long term contract for the
operation by the respective companies of properties taken,
in accordance with the terms of the contract free from
restrictions, claims or obligations not embodied
therein.”
We have agreed heretofore that through the medium of a long-term
contract and supervision of operations under that contract the
Mexican Government would be vested with appropriate and adequate
means to secure contract performance so that all National and
Governmental interests would be thoroughly protected. But it has
been made clear over and over again that the essential basis for
inducing contributions of private money and capital necessary for
the development of these oil properties was the control of
operations by the chosen representatives of the investors.
[Page 695]
In your letter of July 5 you bring forward a new proposition for the
distribution of the revenues of the new oil corporations which
discards all the progress made in our previous discussions of this
question. It is now proposed that after operating expenses and taxes
have been deducted, “the remaining proceeds will be divided between
the two partners (Government and Companies) in the proportion
determined in each contract.” However, until receiving your letter
of July 5 I had thought it was practically agreed that Government
revenues would be fixed in the contract, probably through a fixed
percentage of the oil produced. Thereby the Government would be
absolutely assured of substantial and appropriate revenues and there
would be no controversies in the future over Government taxation or
over the rights of the investors to the proceeds of operations
remaining after the payment of adequate wages, the payment of taxes
and the payment of other operating costs. Through the methods
previously discussed we would avoid the difficulties which are now
presented anew in seeking to determine what proportion of the net
proceeds would go to the private investors. The private investors
would take the risk of recompensing themselves during the period of
the contract for their contributions and of amortizing their
investments, and the Government would be assured of definite
revenues.
Moreover, in making the proposition contained in your letter of July
5 the uninviting prospect is held forth that there may be no
remaining proceeds, because it is proposed that the expenses shall
include “all wages and services to the workers as granted to them by
the decision of the Arbitration and Conciliation Board.” One of the
matters most extensively discussed as to which we appeared to be
heretofore in agreement was the need expressed in the Memorandum of
June 18 as “a reciprocal guarantee of reasonable and workable labor
conditions and the means for establishing and maintaining such
conditions.” We have hitherto discussed and apparently agreed upon
three principles to effectuate this “reciprocal guarantee.”
- 1.
- That a schedule would be written in the contract,
- 2.
- That standards for revision of the schedule would be
stated in the contract, and
- 3.
- That a method of applying such standards impartially would
be provided in the contract.
It is evident that if wages and working conditions are to be
determined at the uncontrolled will of the Arbitration and
Conciliation Board, there may be little or no proceeds left to
provide the Government with revenues or the investors with any
recompense for their contributions. Consequently, under the proposal
contained in your letter of July 5 insurmountable obstacles are
presented to the making of any contract.
[Page 696]
You will readily see from the foregoing observations that it would be
useless to undertake the negotiations suggested in Mexico City.
Indeed, the proposals made in your letter, which are completely
unacceptable to my clients, are so entirely incompatible with the
tenor of our previous conversations that I am regretfully forced to
conclude that the efforts heretofore made to arrive at an
understanding of basic principles have now been abandoned; and,
without such an understanding, further negotiations would be
useless.
Sincerely yours,
