Statement to the Press by the Acting Secretary of State

On March 18, 1938, the Mexican Government by decree undertook to expropriate the properties in Mexico of certain foreign owned, including American owned, oil companies operating there.

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This action was similar in nature, although involving investments of far greater magnitude, to the steps taken by the Mexican Government in recent years to expropriate farm and other properties belonging to American citizens. With regard to the seizure of these agrarian properties, this Government had consistently pointed out that in the exercise of the admitted right of all sovereign nations to expropriate private property, such expropriation must be accompanied, in accordance with the recognized principles of international law, by provision on the part of the Government of Mexico for adequate, effective, and prompt payment for the properties seized. This latter problem was largely settled when on November 9–12, 1938, the two Governments exchanged communications50 agreeing upon a satisfactory procedure for the determination of the fair compensation to be given American citizens whose lands have been taken subsequent to August 30, 1927, and in consequence of which agreement the Mexican Government will provide compensation in cash for such properties.

Immediately following the action taken to expropriate the petroleum properties belonging to American citizens, this Government informed the Mexican Government of its expectation that prompt compensation would be made in the form of just and effective payment to the extent of the fair and equitable valuation of such properties. This Government’s position is firmly based not only on well recognized rules of international law; the elemental considerations of justice and of fair dealing which should govern the relations between nations demand such payment for the properties taken. The attitude of applying the principles of established international law in the solution of this problem has been consistently maintained by every official of the United States Government in its representations to both parties to the controversy throughout the period of the discussion. Furthermore, the close and friendly understanding which this Government desires to continue to maintain with the Government of Mexico requires the reciprocal assurance on the part of both Governments that their relations will in fact be governed by such principles of justice and of fair dealing.

In the decree of expropriation itself and on numerous occasions subsequently, the Mexican Government recognized its liability to make compensation and stated its willingness to discuss terms with the petroleum companies concerned. Since that time there have been discussions between representatives of the Mexican Government and of the petroleum companies in an endeavor to come to some fair and equitable agreement. This Government has continuously and consistently sought to facilitate and to further these negotiations by conferring with both sides, first with one and then with the other. For [Page 699] a time the conversations between both parties proceeded satisfactorily, appearing to hold promise of an eventual solution. A set of bases of discussion, within the scope of which there might be found an agreement for the future operation of the industry, were believed to be determined, but recently a serious obstacle to final agreement was encountered. In this situation this Government, without prior consultation with either party, and in accordance with its repeatedly demonstrated desire to further an agreement, informally laid before both parties a suggested solution of this obstacle, without requesting or receiving any commitment or obligation on the part of either party to accept it.

This proposal was as follows: Each party had claimed that it must control the management and operation of new companies, which it had been agreed in principle might be established to operate the properties seized. In an endeavor to overcome the deadlock, this Government informally offered the suggestion that the Boards of Directors, as a temporary arrangement, and pending a final agreement, be composed of nine persons, three appointed by the Mexican Government, three appointed by the petroleum companies, and three selected by the two parties from a panel of nine drawn up in mutual agreement by the Governments of Mexico and of the United States. In order to attain complete impartiality on this panel of nine, no persons were to be included who came from any country whose citizens had a direct and important interest in any of the petroleum companies involved. These persons were all to be of demonstrated integrity and standing, and of practical experience in commerce, finance, or in the petroleum industry itself. This proposal seemed to offer a temporary middle ground on which the Mexican Government and the petroleum companies could have met with the balance between them resting in the hands of impartial and competent persons.

This Government naturally regrets that a proposal suggested for no other purpose than to reconcile a major difference of approach which threatened a breakdown in the present negotiations should have been discarded by either party without the fullest exploration of its possibilities, especially when both parties fully comprehended the purpose for which it was put forward.

It is of course evident that a solution of this controversy must be found in accordance with the basic principles of international law, as this Government has invariably insisted at every step of the present negotiations. A continuance of the dispute not only will dislocate still further beneficial commercial relations between Mexico and the United States, with great economic losses to both countries, but more important still, it will constitute a material barrier to the maintenance of that close and friendly understanding between Mexico and the [Page 700] United States which both Governments regard as in the best interests of the two peoples.

The discontinuance of the present discussions can of course in no sense relieve the Mexican Government of its obligation to make prompt, adequate, and effective compensation for the petroleum properties which have been taken, if the expropriation is to be regarded as valid. At the same time, however, this Government expects that its own citizens with direct interest in this controversy will give the most ample and attentive consideration to all constructive proposals that are advanced to overcome the difficulties now standing in the way of a fair settlement of the controversy which exists. In the rapid, fair, and equitable solution of this controversy, the interests of their Government are directly concerned.

  1. For exchange of notes, see Foreign Relations, 1938, vol. v, pp. 714 and 717.