Foreign Relations of the United States, 1946, The American Republics, Volume XI

612.003/1–1846

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

confidential
No. 27,989

Mexico, D.F., January 18, 1946.
[Received January 28].

Sir: I have the honor to refer to my Confidential Despatch No. 27,658 of December 13, 1945,¹⁴ and to secret letters of December 14 and December 28¹⁵ addressed to Mr. Carrigan, the Chief of the Mexican Division in the Department, covering conversations which I had with the Minister of Foreign Relations¹⁶ and the Minister of Hacienda¹⁷ on the Trade Agreement between the United States and Mexico,¹⁸ and the recent Circulars of the Ministry of Hacienda placing various articles under import control.

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It will be recalled that in my Despatch No. 27,658 of December 13, 1945, I informed the Department that I had stated to the Minister of Foreign Relations and the Minister of Hacienda that we would carefully follow in the Embassy the procedure of the Mexican Government in issuing licenses in order to determine whether the effect of the issuing of licenses would involve quantitative restrictions on imports from the United States, and particularly on such articles which may be included in Schedule 1 of the Tariff between the United States and Mexico.

It will be recalled that in my despatch that I reported that the Minister of Hacienda, in the presence of the Minister of Foreign Relations, had stated in the most definite manner that the purpose of the import license requirement was to have a control in order to determine whether any quantitative restrictions would be necessary in order to protect Mexican industry, but that licenses would be granted freely and rapidly for American imports even though the articles were in included on these Treasury Lists. It will be recalled that the Minister assured me that the appropriate machinery had been set up for the rapid examination of applications and the granting of the licenses.

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We have gathered a very considerable amount of background material which shows that in practice licenses are not being granted “freely and rapidly” as the Minister of Hacienda informed me they would be. As presently being enforced, the licensing system is equivalent to restriction of imports including articles of Schedule 1 of the Mexico-United States Trade Agreement. Technically, there has already been what this Embassy considers a violation of the Trade Agreement.

I and my associates in the Embassy have felt that it would be better not to raise this question of violation of the Trade Agreement as this will precipitate a situation both for Mexico and us which will have undesirable repercussions. We have therefore prepared an informal and unofficial memorandum of which a copy is transmitted herewith, (Enclosure 1) which I left with the Under-Secretary of Foreign Relations, Dr. Tello, last evening. He was greatly concerned with the situation which I presented. I made it clear that the memorandum was unofficial and informal and that my conversation with him on the matter was presently off the record. I said that if I took up the matter officially with the Ministry, I would have to seek the appropriate instructions from the Department of State to approach the Ministry on the basis that there had already been violation of the Trade Agreement. I said to the Under-Secretary that I thought it was much better for us to endeavor to see if the Circulars could not be made to work as the Minister of Hacienda had indicated they would work. I said that if licenses were granted freely and rapidly, violation of the Trade Agreement would not come into question. It was my understanding that this was what the Ministry of Foreign Relations and the Ministry of Hacienda wanted—that is, that they did not wish any violation of the Trade Agreement and that they did not wish to place any quantitative restrictions on American merchandise unless such restrictions might be found essentially necessary in the protection of the Mexican industry and in such case notice would be given to my Government if the articles affected were within Schedule 1 of the Trade Agreement.

I said that I understood that it was difficult to set up such machinery, but that more than a month had elapsed and that adequate time had relatively elapsed to provide for the setting up of the machinery and that I could assure him in this off-the-record way that this had not been accomplished and that the machinery was not working.

In this same off-the-record manner I told the Under-Secretary that I had discussed this matter fully with the Minister of Hacienda, Mr. Suárez, when he had called on me that morning before leaving for the United States, and that he had expressed surprise that the machinery was not working. The Minister of Hacienda had expressed the desire that Mr. Bohan, the Economic Counselor of the Embassy, discuss these matters “license by license and article by article” with the Under Secretary of Hacienda, Mr. Herzog, without delay in order to bring about a correction of the situation. I said to the Under-Secretary of Foreign Relations, Dr. Tello, that I had requested Mr. Bohan to undertake these investigations immediately with the Under-Secretary of Hacienda, Mr. Herzog. I expressed doubt, in view of the experience in the last month, whether these conversations would have any real fruit, but that we wished to explore every avenue in order to avoid difficulty with respect to the Trade Agreement and in our trade relations.

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Respectfully yours,

George S. Messersmith

[Enclosure—Extract]

A careful review of all legislation concerned with the imposition of import controls indicates that the primary purpose of such legislation is to restrict rather than control imports. Thus, in the Decree of April 15, 1944, the terms restrict or restriction are invariably employed. Similarly, the Presidential Resolution of October 1, 1945, speaks of restrictions on foreign commerce. The circular of December 5, 1945, also emphasizes the restrictive character of the measures.

If our analysis as summarized above is correct, there would seem to be no question but that restrictions imposed under that legislation are, by their very nature, quantitative restrictions and hence subject to the terms of Articles III and X of the Trade Agreement between the United States and Mexico, since it would not appear that Article XVII could be invoked in the present case.

The position that the measures which have been taken are, in effect, quantitative restrictions is borne out by the many reports received from both importers in Mexico and exporters in the United States. These reports are to the effect that applicants for import licenses continue to experience onerous and time-consuming difficulties in connection with the application for import permits. These same reports explain the situation as being due in part to the inadequacy of the mechanics of the licensing system and also apparently to a policy of making the requirements so onerous as to have the effect of discouraging applications. Unofficial information indicates that the situation became so chaotic at the beginning of January that it became necessary for the licensing authorities to declare a truce and make blanket arrangements for the importation of merchandise actually in Customs because of the congestion at ports of entry and the inability to review the tremendous number of individual license applications. Thus, while the situation with respect to goods actually in Customs at the time of the December 5 circular appears to have shown improvement, only a few cases have come to our attention of importers being able to secure licenses for new orders. …

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It is believed that only by a full and frank interchange of views can the interests of both Mexico and the United States be truly served. The United States has amply proved its adherence to the principle of industrialization in Mexico. During the period of the war, it has made available critical machinery for the establishment and expansion of Mexican factories. It has likewise cooperated in the financing and development of those industries. There can be no question of any selfish “mercantilist” view on the part of the United States as concerns the present discussions with respect to the import control system now being so widely employed in Mexico. However, the United States is also committed to the principle that prosperity throughout the world cannot be achieved unless unnecessary barriers to international trade are removed. It is realized that occasions arise requiring the temporary protection of new industries. This principle, as you know, is recognized in the proposals which the United States Government has recently made for the expansion of world trade and employment.¹⁹ At the same time, unless such protection is determined only after a careful analysis of the cost differentials affecting the industries, the danger exists that protection may be given, not to sound industrial development, but to inflated prices, inefficient operations, monopolies and excessive profits.

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14. Foreign Relations, 1945, vol. ix, p. 1178.
15. Neither printed.
16. Francisco Castillo Nájera.
17. Eduardo Suárez, Secretary of the Treasury and Public Credit.
18. For text of reciprocal trade agreement between the United States and Mexico signed December 23, 1942, see Department of State Executive Agreement Series No. 311, or 57 Stat. (pt. 2) 833; for documentation on this subject, see Foreign Relations, 1942, vol. vi, pp. 489 ff.
19. For American proposals for expansion of world trade and employment, for consideration by an international conference, see Department of State Bulletin, December 9, 1945, pp. 913–929; the Department announced on December 6, 1945, that the Secretary of State had transmitted to the governments of other countries the texts of the American proposals.