Foreign Relations of the United States Diplomatic Papers, 1941, The American Republics, Volume VII

711.12/1559½

The Mexican Ambassador (Castillo Nájera) to the Secretary of State

[Translation]

The Ambassador of Mexico presents his compliments to His Excellency the Secretary of State and has the honor to place in his hands a memorandum in which the Mexican Government makes a brief exposition of the various problems which are awaiting settlement between Mexico and the United States and of the different forms which the cooperation between the two countries, which it is desirable to intensify, could take in the near future.

Washington , February 17, 1941.

[Enclosure—Translation]

The Mexican Embassy to the Department of State

On October 7, 1940 the Honorable the Under Secretary of State of the United States of America was good enough to deliver to the Mexican Ambassador at Washington a memorandum² which contained certain proposals made with the intention of achieving the settlement of various problems pending solution between the two Republics.

In accordance with the study which was then made the Mexican Ambassador—at a call made on Under Secretary Welles on November 16, 1940—in his turn delivered to him, pursuant to instructions from his Government, a memorandum³ in which the following questions were particularly dealt with: claims, monetary stabilization, petroleum, silver and international waters.

The exchange of the said documents gave rise to a series of conversations between the Honorable the Under Secretary of State of the United States and the Mexican Ambassador at Washington. At one of them, held on January 4 [24], 1941, Mr. Sumner Welles was good enough to suggest the desirability of the Mexican Government’s studying the manner of paying in petroleum the amount which, under the heading of indemnization, is due to the enterprises expropriated on the basis of the decree of March 18, 1938.⁴ At the same conversation, Under Secretary Welles expressed the opinion that the settlement of the petroleum question would be a most important factor—from the viewpoint of American opinion—in assuring the success of the negotiations which are being carried out.

The Mexican Government, animated by the best will to reach an understanding which would be just, honorable and definitive regarding the points under controversy, believes that the moment is particularly propitious for presenting to the American Government a general project for the solution of the said problems. The project in question includes not only the bases for settling the petroleum question, the payment of the general and agrarian claims and the use of the international waters, but also the principles of a commercial, banking and financial cooperation capable of favoring the development of Mexican economy in the manner which the evolution of the country renders desirable, and in the proportion required, also, not only by the necessity of carrying out the undertakings implied in the agreements to which the two Republics may arrive, but the intention of responding to the obligations deriving, in the field of continental defense, from the declarations signed at the conferences of Panama⁵ and of Habana,⁶ and to those obligations which the future may present for meeting the contingencies of these uncertain times.

For the purpose mentioned, the Mexican Ambassador at Washington has the honor to present to the Department of State, pursuant to instructions from his Government, the following

Memorandum

I. The expropriation of the petroleum companies affected by the decree of March 18, 1938 was carried out in accordance with the principles of our constitution, in the exercise of our national sovereignty, and in virtue of the fact that the respective enterprises had been defying in a constant and deliberate manner the application of the laws in force in the country and opposing the social progress and the just revindications of the laboring classes and endeavoring to foment every kind of international difficulties; this latter to the special detriment of the cordiality of relations maintained by Mexico with the nations said by the stockholders of the said companies to be their countries of origin.

Absolutely legal from the national viewpoint, the measure adopted by the Mexican Government is in harmony with the principles maintained on the subject by various foreign states and particularly by the American Supreme Court of Justice both as regards the expropriation of the petroleum wealth of the subsoil, as to the instalments for the indemnification, and to the manner of payment therefor.

As the intention of the Mexican Government, in accordance with the principles of our country, is to grant an adequate indemnification in the cases of expropriation, there are not mentioned here the writs of execution which might be invoked on the plane of a juridical discussion of the subject; nor do we insist on the points of view which very distinguished writers on law (such as Barthelemy, Deguit, Rolin, Alvarez and Strupp) have maintained in studying—for example—the agrarian reform of Rumania, in the sense that there is no international rule establishing for a given state the obligation of paying a compensation to the nationals of other states when it is a matter of expropriations similar to that which was carried out on the basis of the Decree of March 18, 1938.

Mexico repeats on this occasion that it does not cherish the slightest desire of failing to pay the expropriated petroleum companies an acceptable and just compensation; but it does have an interest in emphasizing that in taking such decision it does so with absolute liberty and with full knowledge of the manner in which other states have resolved analogous problems; whereby it sets on record once and for all that it is animated by the purpose of adjusting its conduct to the broadest interpretations of the canons of International Law in harmony with a proven manifestation of international good will.

II. Once the expropriation was made, the process of the diplomatic claims could not be adjusted on bases of rapid solution. Nevertheless such bases are evident—Mexico has the necessary means to meet any undertaking of indemnization derived from reasonable and equitable settlements. There is in the first place the petroleum wealth itself; not only that of the expropriated companies but that of the zones exploited originally by the nation. The present yield of petroleum is rising considerably. If the subject should be settled therefore by strictly commercial criteria, it would be practicable to arrive at a conclusion on payment with solid guarantees, since the production of Mexican petroleum would offer such guarantees of undeniable amplitude.

The foregoing appears to have been properly judged by the American Department of State for on January 4 [24?], 1941, during a conversation maintained on the subject by Mr. Sumner Welles with the Mexican Ambassador at Washington, the former of the officials mentioned indicated, as a new course to be followed by the negotiations, the direct and confidential settlement between the Chancelleries of the two countries; a settlement which would have as its basis the possibility of compensating in petroleum for the loss suffered by the American companies on March 18, 1938.

With reference to this matter, it is necessary to point out that in the conversation referred to Mr. Welles limited himself to contemplating the possibility of payment in petroleum, without defining what basis would have to be taken for the purpose of fixing the amount of the compensations, so that it must be understood that although the valuation by our courts has not been objected to in principle by the Department of State, it is desired to avoid a process which has been and can be the cause of slow and vexatious controversies respecting the amount owed, with designation of experts and lamentable loss of time for both parties. Precisely in order to avoid such difficulties, the Mexican Government has studied a formula of compensation which in the course of the present document will be set forth with the necessary details and which eliminates any contention respecting the amount of the appraisements.

Mexico will have no objection to accepting the course proposed by Mr. Welles—that is to say: the previous conversations between our Embassy at Washington and the Department of State—provided that in case a solution is reached, the latter be published after the settlement, as a result of a direct understanding between the Mexican Government and the petroleum companies. If, because of refusal on the part of the latter, the arrangement concerted between the Mexican Embassy at Washington and the American Department of State should not be capable of crystallization into a practical and immediate formula, it will be understood that the Department of State will desist from any future diplomatic action regarding the said subject, and that the American Government will declare publicly that it withdraws its interest from the question, leaving the companies to face the consequences of their attitude.

As regards the manner of compensation in petroleum, the system is deemed in every way acceptable. At the present time our country has a very important petroleum production. Those stocks will be assigned in part to the meeting of the necessities of domestic consumption; but the excess, which is considerable, cannot and should not be lost, for it would mean an appreciable prejudice to the national economy.

With reference to this matter—and pending the reaching of an integral solution of the petroleum problem—it is opportune to recall that the Mexican Government has refused to sell the excess referred to to those countries which eventually might be enemies of the American continent; but this attitude, founded on the basis of our international doctrine, the practice of which the United States of America will not hesitate to appreciate and acknowledge, implies serious sacrifices which merit the special attention of the American Department of State. The latter point should lead to the consideration of the fact that the United States market is at present unilaterally protected by a duty on the importation of oil, which makes the sending of our products prohibitive in practice. The reduction of fifty percent from the duty referred to on the amounts imported under the quota system diminishes only slightly the prejudice indicated, since the quota fixed for Mexico is very low and the increase granted for 1941 (1,000,000 barrels) is not in proportion to what Mexico might have expected from the American authorities, as a demonstration of their desire to treat the general problem of the pending negotiations within the framework of a wide and equitable economic understanding.

III. The present moment in international affairs appears to be propitious for the United States of America to examine the importance of aiding Mexico, now that certain reserves have disappeared, in settling a problem which, for many reasons, is disturbing—to the detriment of good inter-American collaboration—to our full economic development. The desire for cooperation which inspires Mexico and the abundance of elements at her disposal for reaching a just agreement, enhance the necessity for both parties to approach the question in a spirit of goodwill that can be translated at once into actual and constructive efforts.

The slowness in the proceedings for reaching an acceptable solution harms not only the conflicting interests—Mexico and the oil companies—but raises a material obstacle for the complete understanding of two friendly countries, and deplorably weakens the strength of any future Pan American action.

In fact, there are to be taken into account not only friction arising out of the very fact that the conflict goes on without settlement, but also the circumstance that Mexico is consequently rendered incapable of assuming with all the power of her economy the obligations which her continental position marks out for her.

The campaign which the affected companies have carried on and are continuing to carry on in the United States, the distrust inspired by the notes and the pending claims, and the lack of full financial collaboration between the two nations mean a sluggishness in the economic evolution of Mexico and an impoverishment which deprive our country of resources essential to meeting certain obligations, among which figure the possible construction of naval and air bases in its territory, and the necessity for providing its armed forces with modern and expensive armament.

The present moment is, from all standpoints, the most favorable for the initiation of a new era in the history of the international relations of Mexico and the United States.

In view of the European tragedy and the abuse of power by the totalitarian countries, the Mexican people—faithful to the international policy of equality, fraternity and good neighborhood—, not only perceives with genuine sympathy the continental objectives which will be imposed upon its efforts in the future, but it also feels, in an extraordinarily positive way, the advisability of a joint action in defense of Democracy with the other American republics and in particular with the United States of America.

An effective, rapid and just settlement of the matters pending between the two nations would consolidate very happily the power of the Pan American doctrine and would give a character of lasting cordiality to the relations between the two governments. For this, the Government of Mexico is disposed to employ all its modest resources and all its full desire to eliminate occasions for controversy, adjusting itself to a broad spirit of collaboration and concord. In expressing this to the Department of State, it ventures to believe that, on its part, the Government of the United States of America will likewise be inspired by the same sentiments of good neighborhood and just cooperation.

IV. On the basis of all the foregoing, the Department of Foreign Relations, being desirous of obtaining within the shortest possible period a practical result from the negotiations which have been pending for years between Mexico and the United States of America, has the honor to submit to the consideration of the Department of State the following bases for an understanding:

1. Claims. The Mexican Government accepts the first point of the plan submitted on October 7, 1940 to Ambassador Castillo Nájera by Mr. Sumner Welles, that is: It accepts as the total amount for the agrarian claims and those arising out of the General Claims Convention the sum of $40,000,000 (Forty Million Dollars), which will be paid in the following way:

a. A deposit of $3,000,000 upon the conclusion of the respective agreement;

b. Annual payments of two and one-half million dollars until the debt is entirely liquidated.

The Mexican Government authorizes that of the United States to announce—when the agreement referred to has once been concluded—that the total sum mentioned above will be divided into various parts corresponding to the different types of claims (agrarian claims—presented in accordance with the Convention of November 1938;—agrarian claims arising between July 31, 1939 and October 7, 1940; general claims and those for properties not included in the three categories named above).

For accounting purposes, Mexico is in agreement that the United States hold in separate accounts the funds received and those delivered to it subsequently.

2. Mexican-American Commission on Continental Defense. Mexico has repeated on various occasions—and, on one of them, by the authoritative voice of the President of the Republic, General Avila Camacho,—that she is disposed to comply with all the undertakings which ensue, from the international standpoint, from her presence as an active member of the Pan American Union.

In conformity with the recommendation made in the third paragraph of the Fifteenth Declaration⁷ issued at Habana by the Meeting of Ministers of Foreign Relations, Mexico agrees to constitute, within the shortest time possible, a Mexican-American Defense Commission. The Mexican Commissioners would be the Military, Naval and Air Attachés assigned to the Embassy at Washington and the establishment of the Commission would be made public by means of a simultaneous declaration of the Governments of Mexico and the United States.

With respect to the possibility of acquiring for the Mexican Army equipment, airplanes and military material from that produced by the United States of America, Mexico appreciates the opportunity which for this purpose is afforded her by the authorities of your country and declares that the Mexican members of the Defense Commission mentioned in the preceding paragraph will in good time consider what number of airplanes, hydroplanes, machine guns, motors, cannon, tanks and other elements of defense the Mexican Republic may be able to purchase or lease.

3. The Oil Question. Regarding the oil question, the Government of Mexico believes that an understanding may be reached with the expropriated American companies, by means of a payment of the compensation requested through the establishment,—during a period to be determined by joint agreement,—of a percentage on the production of all the wells which are producing in the fields which the companies referred to had in operation prior to the Decree of March 18, 1938, which percentage shall be extended to the production of the wells which may be drilled in the same fields in future.

The above-mentioned percentage will be fixed during discussions held for this purpose and shall be paid in oil placed at the disposal of the companies at a Mexican port, free of any charge. The oil administration shall continue to be regulated by the Mexican Government, but this condition does not exclude the possibility of special representatives of the oil companies having a consultative voice and exercising technical and financial supervision in the process of production, and also in the work necessary for new drilling, so that the companies may be convinced of the proper operation of the industry and the suitable management of the funds invested.

With respect to the American companies which did not have any oil production, it will be necessary to concert an agreement on the value of their properties in order to pay them, in oil, an amount equal to the value thereof.

4. Foreign Debt. In connection with the circumstances under which the problem of the Foreign Debt of Mexico now finds itself, the Department of Foreign Relations takes pleasure in communicating to the Department of State that the Mexican Government is prepared to concert an equitable and practical settlement of the said question. On its part, the Department of the Treasury and Public Credit will receive with pleasure any suggestion submitted to it by the holders of bonds of the Mexican Debt, through the International Committee of Bankers.

5. International Waters. With respect to the situation existing on the subject of international waters,—a situation that has brought about a dissatisfaction which can be easily understood from what is stated in Note 4983 presented to the Department of Foreign Relations on December 28, 1940 by the Chargé d’Affaires ad interim of the United States of America,⁸—the Government of Mexico expresses to that of the United States its desire to reach a general solution of the problem as soon as possible, which solution, because of the very nature of the difficulties that have arisen, cannot and should not be limited to a border zone, nor to the course of one of the rivers, nor to formulas of mere temporization. In order to obtain such an objective, without reaching which Mexico would feel that her vital interests had been injured,—both those of the present and those of the future,—the Mexican Government is disposed to concert a treaty in which there shall be taken fully into account the rights of both countries, which shall be given concrete form along the following general lines:

a. Amendment of the articles relative to navigation in the Treaties of 1848⁹ and 1853,¹⁰ and renunciation by the two contracting parties of any claim for nonobservance of the provisions contained in the said articles.

b. Obligation—for both governments—of constructing international dams on the course of the Rio Grande, within the periods and with the distribution of costs which they may accept by joint agreement, and the distribution of the waters held by such dams, approximately in the proportion of fifty percent to each country.

c. Delivery to Mexico of an annual volume of the waters of the Colorado River determined by the proportion between the amounts now used, the urban and farm requirements existing in the valley of the river in the territory of the two countries, and the reasonable and just possibilities of extension of the said requirements in the future.

d. Settlement of the problem of obstructions of the lower Colorado River and construction of international defense works in that region.

e. Establishment of a Mixed Commission on International Waters, with consultative, administrative, executive and jurisdictional powers, and the establishment of general regulations for the labors 01 the commission referred to.

f. Amendment of Article 2 of the Convention for the Distribution of the Waters of the Rio Grande, concluded in 1906.¹¹ Such amendment is proposed with the desire that the monthly delivery be made to Mexico in conformity with the proportional volume which the Mexican Commissioner on Boundaries and International Waters may indicate at the proper time, so that the amount received by the Mexican farmers may be utilized in the best way possible, in accordance with the needs of the crops, and without any injury to American users being produced thereby.

g. A declaration by both governments to the effect that the surplus waters running in the section of the Rio Grande—between Ciudad Juárez, El Paso, and Fort Quitman—shall be the subject of an equitable distribution between the two countries, which shall be determined exactly in one of the clauses of the General Treaty.

h. As a consequence of the acceptance of the foregoing stipulations, confirmation of the present uses—Mexican and American—both on the Colorado River and also on the Rio Grande.

As in the problem of international waters the interests affected by the concerting of a convention of general character are of considerable importance, and as the organic defense thereof may imply in the United States some resistance in internal politics, capable of diminishing the rapidity of the procedure which it is desirable to give to the remainder of the negotiation which gives rise to the present memorandum, the Department of Foreign Relations has the honor to communicate to the Department of State that,—reserving the right to examine with due care the clauses of the Treaty which it proposes,—it would be satisfied for the present to be informed that the American Government accepts, in principle, the initiative referred to and is disposed to consider it without limitation to the course of merely one of the rivers or a part of their valleys.

In proposing a general Treaty, Mexico takes technical and legal reasons into account. From the latter point of view, the partial solutions—proposed on former occasions—do not satisfy the principle of International Law by virtue of which a country, in the exercise of its sovereignty, must not cause harm to its neighbor, a thing which has occurred, in the case of Mexico, as a result of the use which the United States of America has been making, thanks to the utilizations made.

Furthermore, from the technical point of view, an equitable distribution of the waters may be effected only by means of studies and projects carried out jointly by the two countries.

6. Economic Cooperation. The obligations which Mexico is prepared to assume in its plan to settle the oil problem, to honor the Foreign Debt of the country and to liquidate the amount of the general claims and those of agrarian origin, would unilaterally affect the economic conditions of its development if the United States did not contribute on its side all the necessary good will for establishing international cooperation, capable of improving commercial intercourse between the two republics and of giving to Mexico the opportunity to increase its exports to the extent made necessary, not only by the fact of contracting the obligations of which it is a question, but also by the desire to assume very energetically the responsibilities accruing from the agreements in matters of continental defense.

With regard to oil production, on previous pages of this memorandum there has already been pointed out the necessity of there being granted a suitable increase in the quotas fixed for Mexico for the exportation of oil to the United States of America, since the limit set for 1941 is excessively reduced, and places our country in a situation which does not correspond with the proposal—loyally respected by our Government—not to deal in the said product, nor in others such as scrap iron, etc., by taking advantage of the opportunities offered it by certain countries, which,—in view of the present international situation—might in the future be prejudicial to the interests of the American continent.

7. Quota for the Importation of Mexican Oil. With the considerations which appear in pertinent paragraphs of the present document as a basis, the Department of Foreign Relations takes the liberty of insisting upon the necessity of obtaining from the American authorities an amplification of the quota set for the current year and, in addition, the promise that such amplification will be preserved so long as there exists the protection which the United States Government has fixed by means of a duty upon the importation of oil.

8. Sale of Silver. In view of the financial obligations of a permanent character which, as has been said in other paragraphs of this memorandum, the Mexican Government is about to contract, the country will have to guarantee the continuity of its mineral production, which is so important to its general economy. For such purpose, Mexico will need to have the assurance, at least for a period of four years, of the purchase of silver by the American Treasury at a reasonable price. To this end, the Department of Foreign Relations expresses the sincere hope that the American Government, by virtue of the authorization which present laws of the United States give to the Treasury Department, will be disposed to contract for the purchase of a quantity of Mexican silver equivalent to the total amount which our country could deliver within a period of four years, through monthly shipments of six and one-half million ounces, of recent production, with the understanding that the delivery of the silver would be made by our Government in equal monthly quantities during the next four years, at a price analogous to that which is now being paid to American producers. The sales contract should be signed for the abovementioned total and payments would be made monthly in conformity with the proposed periodical shipments.

The suggested equalization is based upon the fact that, as a consequence of the European War, Mexico has lost her markets for some of her industrial metals, which at present are being sold in the United States after payment of heavy import duties. The cancellation or reduction of these would be difficult to arrange because it would doubtless give rise to many protests, but there might be found a just compensation—which would not raise the same obstacles—by increasing the purchase value of the silver, which would equalize the position of Mexican producers of this metal, who are likewise producers of the industrial metals referred to.

It may be added that, in the event of the arrival at the agreement relative to the sale of Mexican silver on the conditions indicated in the preceding paragraphs, Mexico would be willing that the difference between the value of forty-five cents per ounce and the price fixed for the product should be applied to the construction and conditioning of naval bases, air-fields and, in general, to material works intended to perfect the defensive system of the territory.

9. Stabilization Credit. The collaboration of the United States could manifest itself, likewise, through an agreement signed by the American institution which may be considered best suited and the Bank of Mexico, whereby a credit would be opened in favor of the latter up to an amount of $30,000,000.00 (thirty million dollars) in a current account, with the right, on the part of the said Bank of Mexico, to make dollar deposits in that account, a reciprocal interest of 1½ percent on the balances being established.

The availability of the fund thus constituted would serve for monetary and exchange regularization, with the understanding that it would in no way mean a declaration, on the part of Mexico, that it would maintain a fixed rate of exchange, since a relative stability would be sought, our country being authorized to modify the rate of exchange in the manner it might consider to be most advantageous, when the economic conditions of its balance of payments may so require.

In the event that the proposed agreement is arrived at, it would be completed by means of a stipulation to the effect that if—after being in force for five years—the agreement is not extended, by mutual agreement, the liquidation of the balances would be proceeded to and it would be agreed that the balances against Mexico would be paid in twenty-year 3 percent bonds, with yearly amortizations, our country reserving to itself the option of paying in silver.

This agreement would contain, in addition, a clause whereby the dollars—in any balance—shall be computed at the rate of $35.00 (thirty-five dollars) per ounce of gold.

10. Construction of Highways. It is the intention of the Mexican Government, among its other aims, to give special attention to the construction of new highways and to the improvement of those which already exist. For the purpose indicated, it is proposed to effect an issue of road bonds which it hopes to place entirely within the country. However, if the latter should not be possible, it would wish to count on the prospect of a credit up to $60,000,000.00 (sixty million dollars), opened in some American institution—whichever one may be chosen by the Government of the United States;—it being understood that such amount would be equivalent to 60 percent of the total issue and that the bonds intended to cover the credit referred to would have the benefit of interest at 3 percent and would be liquidated within a period of from ten to fifteen years, by means of semiannual amortizations with payment of principal and interest, in such manner that the value of the bond would decrease as the date of its maturity approached.

11. Treaty of Commerce. In his memorandum of October 7, 1940, the Under Secretary of State of the United States was good enough to state (Paragraph 11, Section c) that, at the time of announcing agreement on the settlements relative to the oil question “the Governments of Mexico and of the United States would begin conversations looking toward the increase of trade exchanges, by means of a Treaty”. The Department of Foreign Relations is giving to the suggestion of the Department of State all the attention that it merits and takes pleasure in communicating to it that it agrees to initiate, as soon as possible, the preparatory work for the conclusion of a Treaty of Commerce, which, on equitable bases, would make it possible to give the greatest possible increment to the interchange between the two countries.

V. Taking into account the circumstance that the plan for a general settlement, defined in the foregoing pages, presupposes the adoption of various resolutive measures concerning technical problems of the greatest importance, the Government of Mexico states that, in case its proposals are accepted, in principle, it is most willing to assign to its Embassy in Washington, in the character of Minister Counselors or of Technical Advisers, those legal, financial or other experts which it may be necessary to commission for the rapid progress of the negotiation, in the understanding that it is its desire that the latter be effected through the customary diplomatic channels and not within the framework of a special conference.

Finally,—the several points which are examined in this memorandum being closely related to each other,—the Government of Mexico states that the solution to which it aspires ought, in so far as possible, to be a general one.

2. Ibid., p. 1048.
3. Ibid. p. 1056.
4. See telegram No. 58, March 19, 1938, 4 p.m., from the Ambassador in Mexico, Foreign Relations, 1938, vol. v, p. 725.
5. Meeting of the Foreign Ministers of the American Republics for Consultation under the Inter-American agreements of Buenos Aires and Lima, held at Panama September 23–October 3, 1939; for correspondence, see ibid., 1939, vol. v, pp. 15 ff.
6. Second meeting of the Foreign Ministers of the American Republics held at Habana July 21–30, 1940; see ibid., 1940, vol. v, pp. 180 ff.
7. For text of Resolution XV, see Department of State Bulletin, August 24, 1940, p. 136.
8. Not printed.
9. Hunter Miller (ed.), Treaties and Other International Acts of the United States of America, vol. 5, p. 207.
10. Ibid., vol. 6, p. 293.
11. Signed at Washington, May 21, 1906, Foreign Relations, 1906, pt. 2, p. 1128.