The Secretary of State to the Mexican Ambassador (Castillo Nájera)
Excellency: During the course of the past years there have arisen between the Government of the United States and the Government of Mexico many questions for which no friendly and fair solution, satisfactory to both Governments, has been found. Certain of these problems are of outstanding importance and their equitable solution would redound to the immediate benefit of the peoples of both of our countries.
Animated by the desire to find such an adjustment of all of these pending matters, this Government proposed some two years ago an immediate and comprehensive study by representatives of the Government of the United States and of the Government of Mexico, for the purpose of preparing the way for an expeditious settlement of these controversial questions, the just solution of which would undoubtedly do much to cement the friendly relations between our neighboring peoples.
At that very moment the Government of Mexico by an executive decree expropriated large holdings of oil properties, amounting in value to many millions of dollars and belonging to American nationals, for which no payment has been made and for which there is no present prospect of payment. At various times the Government of Mexico has indicated its ability and readiness to pay. But the fact remains that no payments have been made.
The Government of the United States readily recognizes the right of a sovereign state to expropriate property for public purposes. This view has been stated in a number of communications addressed to your Government during the past two years and in conversations had with you during that same period regarding the expropriation by your Government of property belonging to American nationals. On each occasion, however, it has been stated with equal emphasis that the right to expropriate property is coupled with and conditioned on the obligation to make adequate, effective and prompt compensation. [Page 1010] The legality of an expropriation is in fact dependent upon the observance of this requirement.
In my note to you dated July 21, 193860 I stated that the whole structure of friendly intercourse, of international trade and commerce, and many other vital and mutually desirable relations between nations, indispensable to their progress, rest upon respect on the part of governments and of peoples for each other’s rights under international law. I stated that the right of prompt and just compensation for expropriated property was a part of this structure; that it was a principle to which the Government of the United States and most governments of the world have emphatically subscribed, and which they have practiced and which must be maintained. The Government of Mexico has professed support of this principle of law.
The Government of Mexico has, however, unfortunately, not carried this principle into practice.
Because of its conviction that until this fundamental question be solved in accordance with the recognized principles of equity and of international law, there could not exist an appropriate or favorable opportunity for the solution of all of the other questions pending between the two Governments, and which my Government had been most desirous of adjusting, the Government of the United States has been prevented from proceeding with the negotiations which it had initiated.
On March 16, 1940 you were good enough to hand to me an informal memorandum pursuant to our earlier discussions of the difficulties arising out of the expropriation by your Government of the oil properties belonging to American nationals. Without undertaking to pass in any way upon the memorandum as a whole, it is important to have a clarification of two or three of the points raised therein.
It is stated (a) that “the Mexican Government judges that the right of expropriation is beyond discussion”, and (b) that “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 property by payment of a just compensation, as Mexico is agreeable to paying such indemnity to the expropriated companies.”
I am compelled to take exception to the statements that the “right of expropriation is beyond discussion” and that “there exists no divergence of opinion between the Government of the United States and that of Mexico” in this respect.
As above stated, in the opinion of the Government of the United States the legality of an expropriation is contingent upon adequate, effective and prompt compensation.[Page 1011]
The difference between our two Governments with respect to this principle lies in the fact that the Government of Mexico has assumed and continues to assume to exercise a right without compliance with the condition necessary to give such exercise a recognizable status of legality.
Expropriation of property by the Mexican Government has been taking place on a large scale since 1915 under the so-called agrarian program. While there are now under way efforts looking to a settlement of agrarian claims arising since August 30, 1927, the large number of such claims which arose prior to that date and which were filed with the General Claims Commission under the Convention of 1923, as well as a very much larger group of general claims, some of which date back over a period of approximately seventy years, remain unadjudicated and not a single dollar has been realized by any of the owners of the properties or by any of the other general claimants.
Accordingly, it is incorrect to state that there is “no divergence of opinion between the Government of the United States and that of Mexico” on the subject of expropriation. As stated in my note to you of July 21, 1938, in which I was discussing the expropriation of agrarian properties, the taking of property without adequate, effective and prompt compensation is not expropriation but is confiscation, and as also stated in that note, it is no less confiscation because there may be an expressed intent to pay at some time in the future.
It is also stated in your memorandum of March 16 that “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 … it would be premature to propose the possibility of arbitration”, and that the Mexican Government feels that “in order to determine the amount of the indemnity, the decision of the Mexican courts should be awaited”.
It is difficult to imagine in what way this Government could have made plainer its point of view as to the compensation owing the American petroleum companies. Our records show that the obligation of the Mexican Government to make compensation has been kept before the Mexican Government constantly since the taking of the property. No stone has been left unturned by this Government to bring about a satisfactory arrangement for compensation. Moreover, the statement of your Government is not in the nature of things an adequate answer to the suggestion that arbitration would be an appropriate method of settling the differences between our two countries; nor is the statement that the decision of the Mexican courts should be awaited by any means reassuring.
You further indicate in your memorandum that your Government would be disposed to accept the good offices of my Government in order [Page 1012] to discuss with the companies the question of compensation, or, in the alternative, to join with the United States, in the designation of one or more 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”.
My Government has already used its good offices in the promotion of discussions between the American companies and the Mexican Government, and those discussions, as stated in your memorandum, came to naught. I am therefore unable to perceive that there would be any purpose in reverting to a procedure that has already resulted in a complete failure, nor do I perceive how the designation of experts for the purposes stated in the memorandum would promote a satisfactory solution of the problem. The designation of experts merely to “discuss their points of views” and without authority to receive and consider evidence systematically prepared and presented, to hear arguments pro and contra, and to render decisions of a final and binding character would merely postpone an effective solution which has already been too long delayed.
During the last twenty-five years, one American interest in Mexico after another has suffered at the hands of the Mexican Government. It is recognized that the Mexican Government is making payments on the Special Claims which have to do solely with damages caused by revolutionary disturbances between 1910 and 1920, and has started payments for farm lands expropriated since August 30, 1927. But the Mexican Government has made no compensation for the large number of General Claims of long standing which include an extensive group of claims for the expropriation of farm lands prior to August 30, 1927. It has made no adjustment either of the foreign debt or of the railroad debt both long in default and in both of which American citizens hold important investments. Moreover, the question of the railroad debt was further complicated by the expropriation of the Mexican National Railways on June 23, 1937. Finally, on March 18, 1938, the Mexican Government took over American-owned petroleum property to the value of many millions of dollars, and although two years have elapsed, not one cent of compensation has been paid.
This treatment of American citizens, wholly unjustifiable under any principle of equity or international law, is a matter of grave concern to this Government. These long-standing matters must of necessity be adjusted if the relations between our two countries are to be conducted on a sound and mutually cooperative basis of respect and helpfulness.
As an important step towards placing relations between the two countries on this basis, I suggest resorting to the appropriate, fair and honorable procedure of arbitration. Accordingly, I suggest that the two Governments agree (1) to submit to impartial arbitration all [Page 1013] the questions involved in the oil controversy and to clothe a tribunal with authority not only to determine the amount to be paid to American nationals who have been deprived of their properties, but also the means by which its decision shall be executed to make certain that adequate and effective compensation shall promptly be paid, and (2) either to submit to an umpire, as contemplated by the General Claims Protocol of 1934,61 the unadjudicated claims falling under the Convention of 1923,62 or proceed immediately to the negotiation of an en bloc settlement in accordance with that Protocol.
There exists at this time a complete solidarity on the part of all the American Republics in upholding the principle that international differences of a justiciable character, which it has not been found possible to adjust by diplomacy, shall be submitted to arbitration. I think that the questions here involved fall within this category. At a period when in other parts of the world there is seemingly a growing disregard for the established principles of international law and orderly processes and an increasing tendency to substitute force for pacific methods of settling controversies, it is all the more desirable that the Governments of Mexico and the United States, firm in their adherence to the enlightened principles advanced and supported by all the American Republics, should signify their willingness to settle the differences between them mentioned in the preceding paragraph in the friendly manner indicated.
With the submission to arbitration of the oil controversy and the adjustment of the General Claims matter, the two Governments would then be in a position to go forward at the same time with the negotiations interrupted by the oil expropriation for a general settlement of all other pending matters. This Government earnestly urges this course, as it has consistently done in the past.
I shall be glad to learn whether your Government is favorably disposed to proceed along these lines.