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

No. 8969

Sir: Referring to the Department’s telegram number 170 of August 16, 6 p.m., I have the honor to report that in my usual Thursday call at the Foreign Office yesterday I expressed to the Minister for Foreign Affairs my regret and disappointment at the impasse reached in the negotiations with reference to the expropriation of the oil properties by the Mexican Government, and added that in view of [Page 702] our frequent discussions, in which he had often expressed a hope of settlement, I felt sure he was also disappointed. He said that I was right, and added: “But it is not the fault of the Mexican Government.”

He then recalled that immediately after the decree of President Cárdenas he had informed me that Mexico was determined to make just payment; that he also knew that President Cárdenas had informed me that the officials of his Government would be instructed to confer with the representatives of the oil companies, looking toward an agreement as to the value of the properties, so the Government could arrange for payment; and that there had been a standing invitation on the part of his Government to meet with the representatives of the oil companies to reach an agreement on the sum that Mexico should pay. He said that offer had not been withdrawn and his Government was ready now to enter upon such discussions as it had proposed in March 1938 and later. He regretted that the oil companies had declined even to enter upon such discussion, and said his Government could not pay unless the sum due was agreed upon.

General Hay went on to say that, after the refusal by the oil companies to discuss the value of the properties, his Government had agreed to discussions with Mr. Richberg, seeking to find a basis of settlement that would be fair and acceptable. But, he added, his Government would never consent to the return of properties as the British had demanded, and it could not agree to the proposals as to taxes and wages under a long term contract which the representatives of the oil companies insisted upon.

I said that the impasse was bad for the people of both countries, and that the question now was not who was responsible for the break in the negotiations, but that it was of the highest importance to discover a way of agreement and settlement, and that Acting Secretary Welles had suggested to both parties a method which invoked participation by fair-minded neutrals, since the principals found it impossible to reach an agreement. I told him that every consideration demanded a settlement and that, since it was apparent that the parties had come to a standstill, I saw no way to settle the matter without invoking fair-minded and impartial outside participation.

In the course of the conversation, in which he reiterated his desire for a fair solution, he neither approved nor disapproved the plan suggested by Acting Secretary Welles, but indicated that the determination was in the hands of the President. I urged him to do all he could to further some plan—and it would necessarily involve an outside party—to the desired adjustment of a matter that pressed for settlement. He said that he would give what I had said his serious consideration and he hoped that a way could be evolved.

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His conversation showed that he felt the oil companies were at fault.

I will resume the subject with him at our next meeting, but I am of the opinion that the President himself has taken the whole matter into his own hands.

Respectfully yours,

Josephus Daniels