Foreign Relations of the United States Diplomatic Papers, 1940, The American Republics, Volume V

812.6363/6600

The Mexican Embassy to the Department of State⁵⁷

[Translation]

Memorandum

The declarations of January 31, 1940, took into account principally the arbitration proposed by the oil companies as it appears in the publication Present Status of the Mexican Oil Expropriation in which the said companies disclose that they addressed themselves to the Department of State on May 9, June 16 and July 25, 1938,⁵⁸ suggesting to the said Department that the Governments of the United States, of Great Britain and of the Netherlands submit to the international arbitration of three judges, choosing them from the list of the Permanent Court of Arbitration at The Hague, the points of denial of justice regarding the legality, according to international law, of the Expropriation Decree of March 1938 and the validity of the subsequent expropriations which the oil companies may have suffered without compensation in Mexico. According to the same publication the companies suggested that the terms of a modus vivendi be agreed upon which would restore in so far as possible the status quo before March 1938, pending the handing down of a decision by the arbitral tribunal, and in case the decision should be adverse to Mexico, that the properties be delivered to the companies in accordance with the conditions of compromise proposed January 26, 1936 [1939].

These suggestions of the companies are unacceptable to the Mexican Government.

And therefore an arbitration with the said objectives must be refused.

The Mexican Government judges that the right of expropriation is beyond discussion, and the said Government is agreeable to paying the respective indemnity and therefore it cannot obligate itself to conclude a contract contrary to its own laws.

As regards the Mexican oil company “El Aguila”, a stock company, the Government of Mexico could not submit itself to any arbitration nor would it discuss with another government the situation of the said enterprise in view of the facts that:

a. “El Aguila” is a Mexican company, organized and constituted in accordance with the laws of Mexico, and as such legitimately prevented from invoking the diplomatic protection of a foreign government.

b. International Law plainly rejects the possibility that foreign shareholders of a national company may have recourse to the diplomatic protection of their governments for the purpose of protecting them on account of damages which the said company may suffer.

c. A fortiori, the stockholders of “El Aguila” agreed with the Government of Mexico not to have recourse to the protection of any government; a renunciation which appears on the shares of the said company.

d. The shares of the Mexican oil company, “El Aguila”, a stock company, are bearer certificates which frequently change ownership, and it is difficult to determine the nationality of the holders at the moment of expropriation. Further, the Government of Mexico is disposed to grant to the Mexican oil company, “El Aguila”, a stock company, the same just treatment which it is disposed to grant foreign enterprises.

With regard to the expropriated companies of American nationality, it is proper to express the following considerations:

1. There exists no divergence of opinion between the Government of the United States and that of Mexico regarding the right of the Mexican state to expropriate any private property by payment of a just compensation, as Mexico is agreeable to paying such indemnity to the expropriated companies.

2. It is well known that the negotiations undertaken between the Government of Mexico and the companies under consideration for the purpose of seeking a form of reciprocal cooperation with the object of operating to the common benefit the expropriated properties came to no result. The negotiations which are under way with the Sinclair group are the only ones in which both parties have agreed to determine the value of the properties expropriated.

3. With the exception indicated in the foregoing paragraph, the companies have systematically refused to discuss directly with the Mexican Government the value of their properties as well as the conditions and the guarantees of payment.

4. The proceeding initiated by the Government for the purpose of determining the value of the said properties is pending before the Mexican courts. The companies have refused until now to name the experts who together with those designated by the competent court should proceed to determine the values.

5. No official discussion has yet been had, between the governments of Mexico and of the United States, of the only point pending settlement, that is, the amount of the indemnity and the manner and guarantee of payment. The Government of Mexico is convinced that these conditions—indemnity, manner and guarantee of payment—will be satisfactorily settled, since the said Government has the resources to meet these conditions.

The Government of Mexico understands that the possibility of an international arbitration on a point of International Law should be proposed only when the question arises of settling a matter of fact or of law respecting which it has not been possible for two or more governments to reach an agreement, a circumstance which does not arise in this case, since the governments of Mexico and of the United States have not expressed their respective points of view as to what should constitute a prompt, equitable and adequate indemnity to compensate the American oil companies.

On that account, my Government believes that, in the present status of the matter, it would be premature to propose the possibility of arbitration and feels that, in order to determine the amount of the indemnity, the decision of the Mexican courts should be awaited, a decision which will very shortly be known, in as much as the data necessary to determine the corresponding valuation are now at hand.

Nevertheless, in its reiterated eagerness to reach a satisfactory solution, my Government would be disposed to accept the good offices of that of the United States in order to discuss with the companies what should be considered as a prompt, equitable and adequate compensation.

In case the companies should refuse the good offices, the Government of Mexico would suggest that:

a. The governments of Mexico and of the United States designate, respectively, one or several experts to present and discuss their points of view regarding the calculation of the value of the expropriated properties, and regarding the form and guarantee of payment of the indemnity.

b. When the experts have concluded their labors, they will render to their respective governments a joint report, indicating the points on which they have agreed, as well as the points of variance, if any.

c. In view of the report submitted, the two governments would proceed to decide, in subsequent conversations, upon the proper measures to settle the question in a definitive manner.

My Government is certain that the experts will be able to complete their labors within a very short period since the Government itself has collected all the data to facilitate the labors of the joint commission.

Washington , March 16, 1940.

57. Handed by the Mexican Ambassador, who had just returned from Mexico, to the Secretary of State on March 16. The Secretary said he thought it advisable to have the memorandum translated and to make a study of it before undertaking to discuss it.
58. None printed.