812.6363/6015: Telegram

The Ambassador in Mexico (Daniels) to the Secretary of State

212, In view of the statement by Acting Secretary Welles and the statement given out to the press last night by the Foreign Minister on oil situation please wire instructions. Thursday is the day I always call on Foreign Minister but I can make arrangements sooner if desired by the Department.

Substance of Hay’s message was that oil companies were “recalcitrant” and were responsible for breaking off negotiations. He praised the “friendly attitude” of the United States Government and said the Mexican Government was willing to continue negotiations on the basis of those it had proposed or other basis equally constructive that may be submitted. He says that the oil companies had insisted upon a long term operating contract with special compromises from the Mexican Government on tax matters and labor agreements in violation of Mexican laws. He stated “the companies in one way or another have insisted upon the return of the properties for a certain length of time which without any doubt would result in the drying up of the wells; on an obligation on the part of the Mexican Government not to burden the industry in the future with new taxes as well as to establish a special system in regard to labor conditions distinct from that stipulated by the laws not recognizing on the one hand the rights of the workers and paralyzing fiscal action of the Government asking from the Government an abdication incompatible with the sovereignty.” General Hay says his Government has invited representatives of oil companies to a discussion looking to agreement on [Page 701] the value of properties expropriated and was desirous of making prompt compensation in the shape of a just and effective payment in accordance with an honest and equitable valuation of the properties, adding that his Government had incessantly manifested its good will to discuss the terms of compensation. He adds that his Government will indemnify the companies once the amount is known.

After charging responsibility for breaking off discussions General Hay added that the Mexican Government was willing to deal with the oil companies as a group or separately but that future discussions would have to be on a basis on which conflict could be avoided.

Mexican morning papers display Hay’s statement and press articles from Washington on first pages and in English sections. None of them make editorial comment.