Memorandum of Conversation, by the Chief of the Division of the American Republics (Duggan)

[Participants:] The Secretary of State
The Mexican Ambassador

The Ambassador stated that on Wednesday, February 28, President Cárdenas called him on the telephone to request him to proceed immediately to Mexico by airplane to discuss the questions raised by the Secretary in his conversation with the Ambassador on February 19. The Ambassador hoped to be back in Washington by March 10.

The Secretary said that what he would like to find out in an informal but official way was whether President Cárdenas was opposed to arbitration of the petroleum controversy, as he stated in his press conference [Page 1002] of January 31, 1940. He felt sure that President Cárdenas would understand that this Government, in making its plans, would wish to have directly from him a confirmation or denial of his position as reported in the press.

The Secretary then went on to explain that he preferred, and he thought this also would be the desire of President Cárdenas, to ascertain the President’s position on arbitration through an oral and informal exchange of views rather than through an exchange of notes that might result in long arguments. He would like this information to help him in deciding what he should do with respect to the interests that were in touch with him.

The Secretary thought that the questions presented were simple and said that he hoped that the President would give a simple and specific reply. In effect, all the Secretary wanted to know was whether the Mexican Government would agree to an arbitration of the petroleum controversy under an arrangement which would contain guarantees for the fulfillment of the award; moreover, since the Ambassador had at his earlier meeting indicated that Mexico had been treating the oil companies as a unit in the discussions with Mr. Richberg, would the Mexican Government continue to treat them as a unit in connection with an arbitration, offering to all interests the same proposition.

The Ambassador replied that he understood from what the President told him over the telephone that the President was not favorable to arbitration and that the President had decided that it would be desirable to give the Secretary a memorandum setting forth his reasons for opposition to arbitration. The Ambassador thought that the President wanted to go further than this and to include in the memorandum his ideas for solving the controversy through direct negotiations with the several interests. In that connection, the Ambassador stated that the negotiations with the Sinclair interests were progressing satisfactorily and that possibly that settlement, if it went through, might serve as a model for settlements with the other interests. The Ambassador then explained at some length that the agreement with Sinclair was premised upon an increase in the amount of Mexican petroleum which could enter the United States at the reduced duty.

The Secretary expressed his hope that the President would make the memorandum commenting upon arbitration as simple as possible. If the President desired also to give his ideas on a possible basis for solution, the Secretary suggested that the President might put those ideas in a separate memorandum. Regarding the possibility of an increase in Mexican participation in the quota of oil that can enter the United States at a reduced duty, he said that there were many difficulties involved. He mentioned the probability that Venezuela and other areas would object to any diminution in their quotas, [Page 1003] particularly since in the case of Venezuela the petroleum concession was the only really important concession that Venezuela had received in the trade agreement, and that any arrangements for compensation that Mexico might enter into based upon the reduced duty would be premature because there were great difficulties to working out an increase for Mexico and precarious, since the reduced duty itself depended upon the continuance of the trade agreement with Venezuela, which Venezuela could denounce.

The Secretary stated that he would like to be sure that it was understood that when he talked of an arbitration he of course meant an arbitration wherein the arbitrators would be empowered to set forth in their award the guarantees they considered necessary to assure the fulfilment of the award.

The Ambassador stated that he understood the Secretary’s point of view on this, but that he wanted to state his own belief that President Cárdenas at this moment was not prepared to agree to an arbitration but preferred to endeavor to work out direct settlements through negotiation with the several interests. The Ambassador thought that if an arrangement were arrived at with Sinclair it would be possible to reach somewhat similar agreements with the Standard Oil of California and the Cities Service interests. This would leave only the Standard Oil of New Jersey. The Ambassador thought that on the same basis that the Sinclair settlement had been calculated, the value of the interests of the Standard Oil of New Jersey in Mexico would be around sixteen million dollars. He indicated that Mexico would be willing to settle with the Standard Oil of New Jersey, but that that company had not shown itself interested in reaching a direct settlement since the breakdown of the negotiations with Mr. Richberg.