812.24/11–1644
The Ambassador in Mexico ( Messersmith ) to the Secretary of State
[Received November 23.]
Sir: …
. . . . . . . . . . . . . .
The above paragraphs only give the history of the Decree of May 12 to date, but it is the beginning of the extensive use which the Mexican Government will make of this effective import control. It is believed that it will constitute one of the most complicated and unsatisfactory problems in our economic relationships with Mexico. Mr. Suárez recently said to the Ambassador that he is now studying the advisability [Page 1232] of placing starch, leather handbags, and pipe fittings under the jurisdiction of the Decree. A day or two afterward Mr. Suárez informed the Economic Counselor that he had a very long list of products for which Mexican industry is asking protection under the Decree of May 12, but he only specifically mentioned locks, meaning, particularly, padlocks. Mr. Suárez admitted that pressure was being brought upon him from all sides to give protection to this and that industry and his conclusion was that if domestic manufacturers can prove that they cannot withstand foreign competition and must close without protective assistance, what could he do but give protection to them? These cold facts are being given to the Department because they not only demonstrate what is now taking place in reference to import controls, but they also forecast a very extensive and damaging use of the Decree of May 12 from the standpoint of international trade between Mexico, the United States and other nations.
The Minister of Finance is the officer of the Mexican Government who decides whether or not this or that product will be placed under the Decree of May 12. At the end of the first nine months of this year, Mexico had an unfavorable balance of trade of 218 million pesos and, should it continue unfavorable throughout the remainder of the year, it may reach as high as 250 million pesos. At the same time, the Minister of Finance sees Mexico’s exports on the decline and its imports rapidly increasing; he sees the federal income begin to decline, with the peak of inflationary activity having been passed and, therefore, he listens more readily to the demand of domestic industry for protection in order to prevent shut-downs and unemployment. He also fears the tremendous productive capacity of the United States and domestic producers are not lax in their efforts to convince Mr. Suárez that they must have protection in order to exist. Undoubtedly, Mr. Suárez’ purpose will be to severely restrict certain imports in order to protect similar domestic products, because this procedure will aid him in his attempt to reduce the unfavorable balance of trade.
The Embassy believes that the foregoing facts should be placed before the Department because Mr. Suárez will find himself more and more in the inevitable position of having to give greater protection to certain industries or watch them disappear. While Mr. Suárez will use the Decree of May 12 with reluctance, he has plainly indicated that there are a number of industries which are sound and which must be given greater protection than the present import tariff affords. He said that he had been giving consideration to probable tariff increases instead of a more extensive use of the Decree, but had finally reached the conclusion that the whole tariff structure would have to be changed from specific to ad valorem duties in order to take [Page 1233] value and prices into consideration before he could accomplish effectively the purpose he has in mind. Mr. Suárez said quite frankly that mass production in the United States would permit low cost products to easily absorb existing tariff schedules and sell at market prices which domestic producers could not meet and, therefore, the use of the Decree of May 12 would become inevitable and imperative.
The Ambassador and his associates will have a herculean job before them in the attempt to cooperate with Mexico and hold to a minimum the use of the Decree of May 12 and other import controls which may be instituted. Understanding quite fully the Department’s viewpoints and policy concerning barriers to international trade, every reasonable effort will be made to work with the officials of the Mexican Government for the purpose of trying to find ways and means that will accomplish desired results with the application of minimum controls. But, the Embassy must state its true belief to the Department that it foresees an inevitable application by the Mexican Government of more extensive import controls as time goes on. In spite of efforts which the Embassy may make to induce the Mexican Government not to apply the controls, it is certain that the Mexican Government will consider its reasons sufficiently sound and just under present world conditions to apply them. The foregoing is the situation as it now exists and as well as the immediate future can be predicted.
There is another exceedingly important phase of imports into Mexico which is beginning to develop and which will inevitably cause the establishment of another group of controls. This is the importation of large quantities of surplus war materials in contrast to newly manufactured goods. The Mexican authorities, particularly the Minister of Finance, are already giving much thought to this problem, which undoubtedly will develop to such an extent that Mexico will find it necessary to restrict the importation of surplus war materials by an import licensing procedure that will maintain an orderly flow of surplus war materials and will not adversely affect the domestic economy. Mr. Suárez feels that there will be an extensive range of surplus products which Mexico will very urgently need, and, therefore, licenses will be freely issued for the importation thereof. He states quite clearly and frankly that the importation of surplus war materials cannot remain free because there would immediately develop organizations, companies and individuals, both responsible, and irresponsible, whose prime purpose would be to flood the Mexican market to the detriment of domestic production without any other consideration than that of profit. Mr. Suárez wishes to aid us as far as possible in the disposal of the huge surpluses that will begin to develop at the end of the German war, but he feels that an unrestricted importation of such goods would surely result in a complete prohibition [Page 1234] against them, therefore, he feels that an orderly importation under federal license would better aid in the solution of the problem, although a longer time would be required to do so. He also has in mind that by the establishment of an import licensing system care could be taken to eliminate irresponsible persons and organizations by refusing licenses.
[Here follows a three-paragraph discussion of organizational procedure that might be adapted to control the import of surplus war materials.]
Respectfully yours,
Counselor of Embassy for Economic Affairs