812.659/50
The Ambassador in Mexico (Messersmith) to the Secretary of State
[Received April 27.]
Sir: I have the honor to refer to Embassy airgrams No. 859 of April 17 and No. 874 of April 19, which were in answer to instructions contained in the Department’s telegram No. 561 of April 14 [13], 1943,28 The Department requested that the proposed contract between the Mexican Government and the American Cyanamid Company be submitted to it for consideration before final execution. In compliance therewith, the attachment hereto consists of the following:29 (1) a letter from Col. Frederick Pope to the Economic Counselor, setting forth certain minor changes in the proposed contract; (2) an agreement between the Mexican Government and the American Cyanamid Company; (3) a contract of administration (Appendix B) between Química y Farmaceutica, S. A. de C. V., a corporation to be organized by the Mexican Government, and Técnicos Químicos, S. A., a corporation to be organized by the American Cyanamid Company; and (4) an agreement between Técnicos Químicos, S. A. and the American Cyanamid Company, relative to the right of Técnicos Químicos to use trade-marks, patents, etc. belonging to the American Cyanamid Company. These various contracts and agreements are set forth at length and in most instances are quite explicit of the purposes intended and, therefore, many of the details will not be mentioned in this transmitting despatch.
The proposed agreement between the Mexican Government and the American Cyanamid Company, designated as (2) above, is nothing other than an agreement between the two parties to make a contract after certain conditions have been fulfilled. The most important conditions on the part of the Mexican Government are that the Government will establish a company to be called Química y Farmaceutica, S. A. de C. V.; that the Government will expropriate all the properties of all the intervented companies named in the agreement, including patents, copyrights, trade-marks, advertisements, etc., and [Page 488] pass them to the governmental company; and the Government agrees that the governmental company, Química y Farmaceutica, will sign a contract of administration of the named intervented companies with the company, Técnicos Químicos, to be organized by the American Cyanamid Company. On its part, the American Cyanamid Company agrees to organize the administrative company, Técnicos Químicos, S. A., and through the latter organization to sign a contract of administration with Química y Farmaceutica.
There is one very important point in this agreement to make a contract. It stipulates that the Mexican Government will expropriate the intervented companies destined to form a part of the Government group to be administered by Técnicos Químicos. This feature came somewhat as a surprise, at [as] it is believed that the Government has the right under the Enemy Alien Property Law to transfer these properties as it sees fit, without resorting to expropriation. Col. Pope said that there seemed to be no objection on the part of the Mexican Government to expropriating the properties and that, in fact, this procedure would best meet the situation. If the properties are expropriated, it would mean that the original enemy owners could not anticipate the return of their properties after the war, but, they would hold the right to demand payment under the Expropriation Law. In the case of enemy owners, such funds paid to them would be blocked by the Bank of Mexico to await the decision of the Congress after the termination of the emergency. If the Mexican Government is willing to expropriate the properties in question, it would probably afford the greatest guarantee that the properties themselves would not be returned to the original owners.
The contract of administration (Appendix B) would be signed between the Government-controlled company, Química y Farmaceutica, S. A. de C. V., and Técnicos Químicos, S. A., a company to be organized by the American Cyanamid Company, to operate and administer the cited properties. As it is understood that the provisions of this contract are mutually acceptable to both parties, its importance arises not so much from its details as from the advisability or inadvisability of creating a huge pharmaceutical, chemical, dye, etc. industry in Mexico. It is well to bear in mind that the company to be organized by the Mexican Government, Química y Farmaceutica, will be owned and controlled in its majority by the Mexican Government. This company will be the sole owner of the properties to be passed to it dior administration and operation by Técnicos Químicos. If these intervented companies were being bought and organized into a single group by a private corporation, there would be many reasons to look upon such action with disfavor, because it would constitute a state of private monopoly. It is not believed that the Mexican Government [Page 489] would permit the creation of a private monopoly of this nature. Under the proposed procedure, the Mexican Government will be indirect owner of the properties and can exercise a control over the activities of Técnicos Químicos to such an extent as it may think advisable to prevent monopolistic tendencies to the injury of competitors. In this respect, reference is made to Article Ten of the agreement to be signed by the Mexican Government and the American Cyanamid Company, which states that it is “the desire of the parties to this agreement…30 to encourage the free and unrestricted development of the Mexican chemical industry, and nothing contained in this contract, nor in Appendixes B and C hereof, is to be construed as intending to prohibit or restrain any other company from engaging in similar businesses in Mexico, or manufacturing, importing, selling or exporting chemical products of any kind.”
The administrative contract between Química y Farmaceutica and Técnicos Químicos will expire on December 31, 1949. It contains a provision for an additional period of three years, provided, notice of discontinuance is not given by either party six months prior to the expiration date. This means that during the six-year period Técnicos Químicos will organize the cited industries into one group and it is believed that under the management of Cyanamid a very formidable pharmaceutical, chemical, dye, paint, etc. industry will result. This industry will undoubtedly manufacture many products which originally came from Germany and other countries of Europe and, in addition, a number of products which were imported from the United States. At the end of six years, the Mexican Government can discharge the American Cyanamid Company and assume the administration of the organization developed by the latter. A period of six years into the future is too long to hazard a prediction, but, it is probably safe to say that such a huge and intricate industry would continue to need the management and consultation of such a company as American Cyanamid. Nevertheless, there is always the risk that after the six-year period of administration by Cyanamid, the Germans might gradually work into the organization, or, that the German pharmaceutical, chemical and dye industry, re-established after the war, might secure the predominance of sales to the Government-owned industry. In spite of this possibility, however, the re-entrance of Germans into their formerly-owned companies will be much greater if some such plan as that suggested by Col. Pope is not put into operation.
Should Col. Pope’s plan be rejected and the intervented companies remain under intervention as at present until the end of the emergency, it is the general belief that the former enemy owners will be [Page 490] able to bring sufficient influenceto bear in various ways to regain their properties. This is one of the things which we are trying to avoid. Should the Mexican Government retain these companies under interventorship, there arises another certainty which will develop as soon as Germany can begin shipping chemical, pharmaceuticals and dyestuffs. When that time arrives, the intervented companies will surely turn to Germany for a large percentage of their requirements. On the contrary, if the intervented companies are under the administration of the American Cyanamid Company, as provided for in the contract, purchases from Germany can be held to a minimum and, during the six-year period, American and Mexican products can be so well entrenched in the Mexican market that I. G. Farben will find it difficult to re-establish its products.
The contract provides that all trade-marks, patents, advertisements, etc. belonging to or used by the intervented company will become the property of the Government-owned company, Química y Farmaceutica, S. A. de C. V., and that such of them as may be desired by Técnicos Químicos would be for the exclusive use of the latter. If Técnicos Químicos does not wish to use any of them, they will probable lie idle for at least the life of the contract. Those selected by Técnicos Químicos would become known as Mexican instead of German during the six-year period and, therefore, it is reasonable to assume that the Mexican Government would not be willing to release them.
Col. Pope was asked about his intentions with respect to selling and distributing products of other American companies through the wholesale and retail outlets of the new organization. He said that he had every intention of giving the public what it wanted and, consequently, products of other manufacturers would have full access to the distribution made by Técnicos Químicos. It seems to be quite certain that the Government will insist that Técnicos Químicos give private manufacturers an equal opportunity to distribute their merchandise through the new company.
It is recognized that the gradual building up of a pharmaceutical, chemical and dye industry in Mexico will affect imports from the United States along those lines, but, the corollary is that the demand for other products will increase. If Mexico is not permitted to further industrialize, then we can look forward again to a post-war period in which the country will be drained of its financial resources to pay for an excess of imports of consumer goods. Industrialization up to a certain point will help Mexico solve many of its problems and afford us a prosperous instead of a bankrupt neighbor.
The viewpoints stated in this despatch are given in the hope that they will be of some assistance in aiding the Department to reach a decision in the case of the contract between American Cyanamid and [Page 491] the Mexican Government. Since the Mexican Government is a party to the contract and agrees to the establishment of the new industry, it is believed that the probable results will be worth the trial. The Economic Counselor recalls that during the early months succeeding the institution of the Proclaimed List, he made every effort to induce our independent drug manufacturers to jointly organize a distributing company in Mexico. There was much talking about the matter, but they could not get together. As a result, some of our pharmaceutical companies made distributing arrangements with Mexican companies already in existence which are much weaker than such companies as Beick Felix and Carlos Stein. Several of the American companies, particularly, Sydney Ross and Abbott Laboratories handled their own distribution. The point is that our distributing talents are dispersed and are not unified and, therefore, should the Germans re-enter Mexico and regain their properties, we would be once more confronted with unified distribution, which is difficult to meet through individual sales efforts.
The Department is requested to transmit as soon as possible the copy of the enclosures marked “Copy of Original” to Mr. William Brown Bell, President, American Cyanamid Company, 30 Rockefeller Plaza, New York City, New York.
Respectfully yours,
Counselor of Embassy for Economic Affairs