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

412.11 (41) Agreement/16

The Department of State to the Mexican Embassy

[Washington,] October 7, 1940.

Plan for Settling Outstanding Problems Now Pending Between the United States and Mexico

1. In settlement of the claims listed hereafter by the United States against Mexico, and of the claims listed hereafter by Mexico against the United States, the Government of Mexico will pay the Government of the United States the sum of $40,000,000.

2. With a view to facilitating the liquidation of these claims, Mexico will make a deposit of $3,000,000 and thereafter will make annual payments of $2,500,000 until the Special Claims are paid off, and $3,000,000 annually thereafter.

3. Claims included in settlement:

(a) Claims of United States against Mexico:

(1) Claims filed under the General Claims Convention.

(2) Agrarian claims filed under the Agrarian Claims Agreement of November 1938.

(3) Agrarian claims which arose after July 31, 1939 or so shortly before that date that it was not practicable for the affected landowners to file their claims before July 31, 1939.

(4) All other property claims.

(b) Claims of Mexico against the United States:

(1) Claims filed under the General Claims Convention.

(2) All other property claims.

4. Although Mexico will pay a global amount as settlement for all of these pending claims, the United States will be permitted to announce that in agreement with Mexico the total sum is divided into parts corresponding to the types of claims listed under 3.(a). Moreover, as a bookkeeping matter, the United States will keep in separate accounts the funds which it has already received and which it will receive from Mexico.

5. The United States will cooperate with Mexico to stabilize the Mexican currency. In as much as stabilization will make unnecessary the retention of all of the present Mexican currency reserve, a part thereof can be employed to effect compensation on account of claims as indicated in numbered paragraph 2, and on account of the petroleum expropriation as indicated in numbered paragraph 6, hereafter.

6. Coincident with the announcement of the settlement on claims and the stabilization arrangement:

(a) The Mexican Government will make a deposit of $9,000,000 on account for compensation of the expropriated petroleum properties. At the same time the United States and Mexican Governments will announce the appointment by each government of an engineer who, with assistants, will make an appraisal of the expropriated petroleum properties. Mexico will agree to furnish access to all data, including the confiscated company books. The engineers will agree upon an evaluation of the properties. If unable to agree, they will submit their separate estimates to their governments which will agree upon a final figure through diplomatic negotiation.

(b) The Mexican Government will officially and in writing inform the Government of the United States that it will countenance no more expropriations of properties belonging to American citizens except in urgent and special cases of the national welfare, and that in these cases prior, just and adequate compensation will be made.

7. After determination of the amount of the petroleum indemnity the Mexican and United States Governments will agree with regard to the time in which this compensation shall be effected. The minimum period will be five years, the maximum period, eight years. An equal installment of the compensation shall be made each year. Mexico will agree that a fixed amount on each barrel of oil sold shall be set aside in a fund to make compensation. If the proceeds in any one year of this fixed amount do not equal the total annual payment, Mexico will make up the difference from its regular budgetary sources.

8. As an alternative to the plan referred to in paragraph 6.(a) and 7. consideration would be given to a plan whereby the companies would extend certain expert services, financing, and marketing facilities and receive from the Mexican Government a determined percentage of oil or would deliver to the Mexican Government a determined percentage of the net proceeds.

9. During the time that steps are being taken to resolve the petroleum question:

(a) The Mexican and United States Governments will:

(1) Discuss the extension to Mexico of the necessary credit facilities for highway construction, particularly for the construction of the section of the Inter-American highway between Oaxaca and the Guatemalan border; and

(2) Discuss an agreement for the purchase by the United States Government of silver produced in Mexico; and

(b) The Mexican Government will enter into discussions with representatives of the American holders of Mexican bonds for an agreement for the renewal of debt service.

10. It would be the purpose of the United States and Mexican Governments at the time they announce the determination of the value of the expropriated petroleum property and the arrangements for payment likewise to announce the conclusion of arrangements governing highway credits, silver purchase and debt settlement.

11. At the time of the announcements to be made as indicated in numbered paragraph 10:

(a) Mexico would further announce that it was entering into discussions for a settlement of the problem of railroad indebtedness; and

(b) The Mexican and United States Governments would enter into discussions with regard to the manifold problems arising out of the distribution of waters from the Rio Grande and Colorado River.

(c) The Mexican and United States Governments would enter into discussions for the increase in commercial intercourse through the medium of a trade agreement.