The Ambassador in Mexico (Messersmith) to the Secretary of State

No. 27,658

Sir: I have the honor to refer to correspondence during the course of this year with the Department on the Trade Agreement between the United States and Mexico and on the decree of April 15, 1944, published in the Diario Oficial of May 12, 1944, under which the Ministry of Hacienda is authorized to place, in its discretion, certain articles under import control license. I have to refer specifically to the airgram of this Embassy No. A–3157 of December 5, 1945,2 in which we informed the Department that there was published in the Diario Oficial for that date a further list of commodities which are placed under import control and under the decree of April 15, 1944. Specific reference is also made to the telegram of this Embassy of December 73 in which I informed the Department that I had discussed fully on the evening of December 6 the new circular. Specific reference is also made to report No. 537 of December 8, 1945, entitled “Comments on the Motives and Effects of the Mexican Import Control Measures of December 5, 1945”,2 and which is a full statement of the 74 items added to the list by this last circular, with analysis of each item.

During the course of the current year, in comprehensive despatches and informal letters which are too numerous to enumerate by number and date in this despatch, I brought out the dissatisfaction in some Mexican official and business circles with respect to the Trade Agreement. I brought out the fact that industrial development had [Page 1179] taken place in Mexico on a considerable scale during the period of the war, and that this industrial development was partially stimulated by the inability of Mexico to secure certain products from the United States during the course of the war, in spite of the efforts which we made to give the Mexican economy the basic goods which it needed, and was also stimulated by the increasing desire there is in this country to develop local industry, in which desire Mexican initiative has been aided by the initiative of American industries desiring to participate in industrial production in Mexico. In these despatches I have brought out that the industrialization of Mexico, even though it was proceeding slowly and on a relatively small scale, would bring about pressures on the Mexican Government for protection of various kinds, and that the Mexican Government would not be able to withstand these pressures and would, in many cases, be actuated in the measures which it took by an altogether sound and correct desire to aid such developing industry. I further brought out in these despatches that, attached as we were to certain trading principles, and to which principles Mexico has so far given her adherence, there was no doubt in my mind that we would have to be understanding of certain actions which the Mexican Government would find it necessary and desirable to take to protect certain developing industries. In this connection, I mentioned that we would have to bear in mind, in considering any Mexican measures, the fact that we had followed exactly the same course in the United States, and that without affording a certain measure of protection to our own early developing industry, we would not have been able to develop these great industries which we now have, against altogether free foreign competition. In these despatches under reference I have endeavored, during the course of the year, to present basic considerations with respect to economic policy affecting the two countries which would have to be borne in mind if reasonable attitudes were to be assumed by both Governments and by industry in both countries.

The Department will recall that on April 15, 1944, a decree was issued by the Mexican Government, which has since been approved by the Mexican Congress, which gives the Ministry of Hacienda the powder to place certain articles under import control. When this decree was issued, the Mexican Government made it clear that it was not intended to limit exports to Mexico except when such limitation might be necessary in the protection of developing Mexican industries. The Ministry of Hacienda used the powers given to it under the decree sparingly, but in the circular of September 19, 1945, a considerable number of articles were placed under import control. The circular of December 5, 1945, added some 74 items to the import [Page 1180] control list. The circulars issued previous to December 5, 1945, had affected only three articles in Schedule (1) of our Trade Agreement. The circular of December 5, 1945, affected sixteen items on Schedule (1) in the Trade Agreement.

This Embassy, as the Department will have noted from the despatches which we have written during the latter part of 1944 and during 1945, has been following this development with the closest interest and has been adequately reporting thereon. It will be recalled that towards the middle of 1945, the Department was informed that the Mexican Government wished to proceed with a revision of the Trade Agreement. I was informed by the Department that it was prepared to meet with the Mexican representatives for discussions to that end, and I so informed the Ministry of Foreign Relations. For the last several months, however, there has been no word from the Ministry as to when the Mexican Government wished to proceed with these negotiations and we had reason to believe that the Mexican Government had lost interest therein.

Immediately on the publication of the list of 74 articles added by the circular of December 5, 1945, we gave it careful study and on the evening of December 6, I called on the Under Secretary of Foreign Relations, Dr. Tello, as reported in my telegram of December 7, 1945. I found that the circular had already been carefully studied in the Ministry. I found that the circular had been issued without the knowledge of the Ministry. In my conversation with the Under Secretary, I went fully into the Trade Agreement, as well as the economic aspects and implications of the new list. The Under Secretary informally expressed the opinion to me that the circular appeared to be in contravention, so far as some of the items were concerned, with our Trade Agreement. In my discussion with the Under Secretary, I went not only into the Trade Agreement aspects of the circulars issued by the Ministry of Hacienda and expressed the opinion that some 19 of the items included in these circulars were in violation of the Agreement, but I also entered into the economic implications of these circulars. I said that the goods covered by the circulars were for the most part in scarce supply in Mexico and the United States. I said that prices in Mexico were already abnormally high because of these scarcities. I emphasized that, in addition to the production and procurement difficulties already existing, the result of this circular would be to further delay and make more difficult necessary importations for the Mexican industry, in many cases, particularly in the case of chemicals, for basic Mexican industries. I pointed out to the Under Secretary the very considerable efforts which my Government had made, and which had so much occupied this Embassy, to secure for the Mexican economy all these articles, so many in scarce supply and [Page 1181] still so, and that the result of this activity of our Government and of this Embassy had been that, to a very considerable degree, the Mexican Government had been able to receive the basic supplies which it needed. I said that I was deeply concerned with the effects which these import restrictions would have, as they would tend to increase these scarcities in Mexico and place new difficulties in the way of procurement and that the only consequence could be further increases in prices in Mexico and greater accentuation of scarcities. I did not hesitate to say to the Under Secretary that if the Mexican Government by its own action placed difficulties in the way of the procurement of essential articles for its economy, it could hardly be expected that this Embassy or the officials of our Government in Washington would continue to have the same interest in getting for Mexico those essential articles which it needed. I said that the scarcities in most commodities were still so great, and would continue so for the next year or more, and the United States would remain the principal source, that any lack of interest on the part of our manufacturers in supplying orders from Mexico would certainly work to the disadvantage of the Mexican economy. I said that manufacturers had so many orders on their books that they far exceeded the possibilities of supply, and that if too many difficulties were placed in the way of export to a particular country, it was the most natural thing in the world that exporters might lose interest in a market, at least temporarily, in which so many difficulties were placed in the way.

There is no doubt that these and other considerations which I brought to the attention of the Under Secretary deeply impressed him, for he is a man of great understanding, and he said that he would immediately bring these considerations to the attention of the Minister.5

After the foregoing conversation, I was requested by telephone by Under Secretary Tello to be in the Ministry on December 11, at five o’clock in order that the Minister, Dr. Castillo Nájera, and the Minister of Hacienda, Mr. Suárez, could discuss the Whole matter with me.

I met with Dr. Castillo Nájera and Mr. Suárez the afternoon of December 11 at five o’clock and the conversation continued during more than two and a half hours. There was the most frank exchange of views and on a friendly basis, but many aspects of the whole problem were gone into in the most frank and complete manner. It is obviously impossible in this despatch to give a full statement of the substance of so long a conversation and I shall therefore in this despatch confine myself to giving to the Department the major aspects [Page 1182] of this conversation, which, in view of some of the statements made by Dr. Castillo Nájera and Mr. Suárez, were most important, as basic attitudes of the Mexican Government were set forth.

The conversation was opened by Mr. Suárez, who entered into a long statement of conversations which he had had with the late President Roosevelt and former Secretary of the Treasury Morgenthau. The substance of his extended remarks in this connection was to the effect that President Roosevelt in several conversations had emphasized to him the policy of the United States of aiding and stimulating the industrialization of certain countries and particularly the industry of the other American Republics. Mr. Suárez said that when he had indicated to President Roosevelt that this policy would meet with a good deal of direct and indirect opposition by certain interests in the United States, the late President Roosevelt had replied that “our Government would know how to take care of that”. He then entered into a full statement of remarks which had been made in the same sense by former Secretary of Treasury Morgenthau and spoke at considerable length of the statement made by then Secretary Morgenthau at the Bretton Woods meeting,6 at which Mr. Suárez was present as the principal representative of Mexico. Mr. Suárez said that Mr. Morgenthau had made formal statements there with respect to the policy of the United States Government in fostering and stimulating sound industrial development in the other American Republics.

. . . . . . . . . . . . . .

The Minister said that the only violation of the Trade Agreement involved in the issue of the circulars would be if quantitative restrictions were placed, and these were not provided for in the circulars, which only required import licenses for the items listed. He then made the most important statement made during the whole conversation, which was to the effect that the Mexican Government, through the Ministry of Hacienda, will grant licenses for the importation of goods from the United States freely, even if the goods are on these lists. He said that if the quantity of goods brought in from the United States showed that the volume was adversely affecting a particular industry in Mexico, then the Mexican Government would find it necessary, through the limiting in the granting of licenses, to place what were equivalent to quantitative restrictions. In that case there would be violation of the Trade Agreement, if the Mexican Government did not in such case discuss the matter with us in the manner provided in the Agreement, but he wished to affirm that the Mexican [Page 1183] Government would follow this procedure in the Agreement and that it had no intention to violate the Trade Agreement.

At this point, the Minister of Foreign Relations, Dr. Castillo Nájera, stated that he wished to make it clear that it was the attitude of the Ministry of Foreign Relations that up to the present time there had been no violation of the Trade Agreement through the circulars of Hacienda; that the issuance of the circulars had been a matter of prevision that the Mexican Government did not wish to take any action violating the Trade Agreement, and would not do so. He expressed himself in accord with the Minister of Hacienda, Mr. Suárez, in what he had just said. He repeated that licenses would be issued freely for the importation of these goods from the United States, which goods appeared in the circulars issued by Hacienda. If the volume of such imports of a specific item rose to the degree that the Mexican industry also producing these articles was endangered and might have to shut down, then quantitative restrictions would have to be applied, through the limitation of licenses, but in that case, the appropriate steps would be taken by the Mexican Government before our own, as provided in the Trade Agreement.

. . . . . . . . . . . . . .

I then raised the question of the Trade Agreement conversations which had originally been raised by the Mexican Government, as I have reported in my despatches to the Department. I said that the number of items which we wished to take up with the Mexican Government was so small that it would not justify the taking up of conversations for revision, but that in view of the Mexican request, we were quite prepared to do so, and I had notified the Ministry of Foreign Relations to that effect several months ago. I inquired if this implied any lack of interest in the Trade Agreement. Dr. Castillo Nájera said that the Mexican Government was very much interested in the Trade Agreement and that he was about to send me a note saying that the Mexican Government was ready to proceed at any time and to meet the American representatives in Mexico City. I said that I was sure that my Government would be prepared to have the conversations in Mexico City, but that I thought this would be a great disadvantage all around. I said that we had our Trade Agreements machinery set up in Washington and that the burdens on our organization were so great that it was practically impossible for people to leave Washington at this time or in the foreseeable future. In any event, I was sure that it would be much more satisfactory to both sides to have the conversations take place in Washington. Dr. Castillo Nájera and Mr. Suárez consulted and they agreed that they would have no objection to the Trade Agreement conversations being held in [Page 1184] Washington. Dr. Castillo Nájera said that I could inform my Government that I would receive a note in a few days, to the effect that Mexico was ready to proceed and was prepared to have her representatives in Washington several weeks hence. I would be notified in a few days more also of the names of the Mexicans who were to proceed to Washington.

I recalled to the two Ministers the fears which I had expressed in previous conversations that they would be proceeding to Washington with such a long list of items that it might bring about a wrecking of the conversations. I said that I was sure they would recall that these Agreements were “reciprocal” Trade Agreements and that we had just as many people in the United States interested in getting revision of certain items as there were people in Mexico interested in certain items. I said that we had resisted these pressures at home because we were sincerely attached to these principles of liberal trade and wished to bring about as free a flow of trade as possible. I said I wished again to express the hope that the Mexican representatives would not arrive with a bag full as it would mean that we would have to let down the bars to those who were pressing us and that I thought the consequences might be a serious endangering of the Agreement which meant so much to both countries, and which I was convinced meant a great deal to Mexico.

Both Ministers assured me that they would have a relatively small amount of items to present. They would include principally items under iron and steel and manufactures thereof, chemicals, paints, bathroom fixtures, and steel furniture—in other words, items included in the circulars issued by Hacienda. I am giving this preliminary information in this respect to the Department as it may be an indication for our people who will be talking with the Mexicans as to what they may expect.

I may observe in this connection that I am confident that for a time the Mexican Government had lost interest in the Trade Agreement. I think the attitude of the President of Mexico has been the deciding factor in this matter. He is a sound man who has a good knowledge of economics and he realizes the importance of the Trade Agreement to his country as well as to our own.

I am also convinced that, having lost this interest in the Trade Agreement, the Ministry of Hacienda conceived the idea of bringing about protection through the means of these Treasury circulars and that it was their intention to limit the granting of licenses as a purely protective measure. I think it was the strong presentation which I made of this matter to the Under Secretary of Foreign Relations, and which he passed on to the Minister, which undoubtedly the Minister [Page 1185] passed on to the President, which brought about the interpretation of the Treasury circulars which was communicated to me in the conversation being reported upon, and in which I was assured that licenses for imports from the United States would be freely granted.

I ended my part of the conversation by saying that I wished to repeat that I thought the effect of the circulars, no matter how wisely and liberally interpreted by Hacienda, in the sense that had been conveyed to me, would result in the creation of scarcities which would tremendously increase the already high prices of many types of merchandise in Mexico and which would result in lessening the interest of American exporters in this market when they were being pressed by orders from every part of the world and from our own domestic economy, which was still half starved. I said that, as I saw it, even if a violation of the Trade Agreement was not involved in the issuance of the circulars, I did not see how the licensing system could operate adequately so as not to bring about a violation of the Agreement. I also said that I wished to state that it seemed to me that in a number of articles such as tin plate, cold rolled plate, and others, they were taking measures to limit importation of articles in which production did not yet exist and in which there was no certainty as to when production would begin. I said that the only result of such premature action could be higher prices in Mexico for many basic articles.

Both Ministers then went on to say again that the licensing system would be so administered that there could be no complaint from American exporters and that there would be no violation of the Trade Agreement, and that they were the ones primarily interested in the avoidance of scarcities.

I expressed to both Ministers my appreciation of the full and frank manner in which we had been able to discuss this matter. The Department will note from this despatch that the two Ministers and I talked very frankly, and I think perhaps this is on the whole a very good indication. The conversation was amicable and it indicated that matters of this kind could be discussed without feeling. I repeat that perhaps this, in itself, is a good indication. I have the very real conviction that the conversations which we have had recently and the things which we have been able to say will place a very real curb on the unlimited pretensions of certain individuals in Mexico, who have no regard for the interest of the Mexican economy but only for the selfish interest of their small industry. There were many things, however, said by the Minister of Hacienda of which I think we must take due note, for I think there is no doubt that Mexico is determined to protect her developing industry, and for this aspiration I have the most complete sympathy, for I believe it is in accord [Page 1186] with our own policy, and certainly the practice which we have always followed and which, even under liberal trading practices which we profess and practice, we cannot deny to others. The statement of Mr. Suárez that the Mexican import duties are relatively low still compared with ours, is justified. His reference also to the fact that their duty is one on weight and volume for the most part, while ours for the most part is one on value and has worked in our favor, is also worthy of consideration.

Just before the close of the conversation, Mr. Suárez said that he wished to inform me in confidence that the Ministry of Hacienda was shortly going to issue a circular increasing the duty on certain luxury articles, such as diamonds, jewelry, furs, and certain articles of porcelain, such as bibelots. He said that the duties on these articles had been fixed about twenty years ago and that, in the meantime, the price of these articles had increased tremendously. He said that the purpose of the increase of duties on a limited number of luxury articles was, first, to get further revenue for the Treasury, and, second, to bring the duties more in line with the present prices of these articles.

With respect to the Trade Agreement negotiations, it will be noted from this despatch that I am to receive a note from the Foreign Office in the next few days, indicating that the Mexican Government is now prepared to go ahead with these negotiations, is ready to carry them on in Washington, and will be ready to begin within two weeks. My own thought is that we should express a readiness to begin these negotiations immediately after the first of the year, as I see no useful purpose to be served in beginning them before the Christmas holidays. I will get in touch with the Department immediately I have the note from the Foreign Office.7

I had a meeting with the Economic Counselor, Mr. Bohan, the Commercial Attaché, Mr. Clark, and others of the staff intimately associated with this problem, yesterday afternoon, and I gave them a résumé of my conversation with the two Ministers, as set forth in this despatch. It was agreed that if the circulars were carried through as I had been informed they would by the two Ministers, it would be difficult for us to establish violation of the Trade Agreement. It was agreed that whether there would be violation of the Trade Agreement could best be determined by following closely the practice of the Ministry of Hacienda in granting licenses for imports from the United States. Arrangements were made so that we can follow closely this situation and that we can keep our Government and the Mexican Government informed of what appear to be failures to meet the interpretation of the circulars as it has been conveyed to me. I expressed the opinion that, irrespective of whether in the opinion of our Government [Page 1187] the circulars themselves involved violation of the Trade Agreement, it was better for us to await developments before we make any formal protest to the Mexican Government in the sense that the circulars themselves involve a violation. It seems that this is the most prudent course to follow, in any event, and more particularly because the Trade Agreement conversations are in the near offing.

It was agreed that so far as American and Mexican importers are concerned, who may approach us on this matter, we will make no mention to them of the conversations which I have held with the Mexican Government, but that we will limit ourselves to saying that we believe that applications for import licenses for goods to be brought from the United States will be promptly and adequately acted upon, and if any importers of American goods find difficulty, they are to so inform us. The Economic Counselor and I are also in agreement that we will say to importers that they should not endeavor to build up large stocks which would cause apprehension, but that they should confine themselves to asking for licenses for their normal imports.

Respectfully yours,

George S. Messersmith
  1. Not printed.
  2. Telegram No. 1295, December 7, 1945, 6 p.m., not printed.
  3. Not printed.
  4. Francisco Castillo Nájera.
  5. United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, July 1–22, 1944. For documentation, see Foreign Relations, 1944, vol. ii, pp. 106 ff.
  6. Action on this matter appears to have been postponed in subsequent months.