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

No. 28,380

Sir: I have the honor to inform the Department that the seventh and final meeting with the Ministry of Hacienda was held on March 8. The results of the conversations can be summarized as follows:

Of the 119 tariff fractions included in the circulars, 31 will be removed and 15 others, although remaining on the circulars, will not be subjected to the import license requirement;
The principle was established that products rather than tariff classifications should govern inclusion in the circulars, thus greatly reducing the number of products subject to control;
The Ministry of Hacienda has been convinced that many of the claims of local industrialists are exaggerated and it is believed that in the future more careful study will be given to appeals for protection before action is taken;
The mutual interchange of information will permit the trade negotiation conversations in Washington to be carried out against a factual rather than a theoretical background.

On the other hand, the Embassy feels that while it has convinced certain key officials of the Ministry of Hacienda of the undesirability of excessive protection, it did not succeed in its major objective of convincing the Ministry that the import control technique should be abandoned. The Ministry remains firmly of the opinion that during the transition period it must have a means for quickly and decisively meeting any threats to Mexican industry. At the same time, a backfire has been set which will tend to combat the extreme demands for protection of any and all industries and without regard to quality or price factors. In fact, evidence has already reached the Embassy that the Ministry has adopted a strong attitude with respect to the prices charged by certain local producers of iron and steel products and is insisting that present inflated prices be reduced. Furthermore, it is apparent that the licensing authorities are showing better judgment in the issuance of import permits and conditions in this respect have improved noticeably during the past month.

The conversations should be likened more to a skirmish than to a battle for liberal trade principles. The battle itself will have to be fought in Washington. The Embassy is hopeful that the preliminary conversations have tended to introduce serious doubts in the minds of Mexican officials as to the soundness of the policies followed to date. However, it is not yet possible to determine to what extent the Minister of Hacienda may be opposed to the more liberal attitude assumed by his subordinates and it is likewise not yet possible to advise the Department specifically with respect to the attitude of the Foreign Office and the Ministries of Economy and Agriculture. As has been brought out in letters addressed by the Ambassador to Mr. Clayton,22 his conversations with other cabinet officers have done much to awaken opposition to the extreme protectionism of the Minister of Hacienda, whose policies have been almost identical with those promoted by the Lavin group of industrialists. In any case, progress has been made and the Embassy is hopeful that forces have been set loose which will cause the Government to follow a more moderate policy than has heretofore been the case.

The foregoing does not imply that other articles will not be placed under control. As a matter of fact, at least three other fractions may be soon subjected to import controls, i.e., locks, files and barbed wire. [Page 1045] However, unless it is greatly mistaken, the Embassy does not feel that large numbers of new fractions will be added to the restricted list and this in itself is a favorable development since the Ministry of Hacienda had originally planned to subject no less than 823 tariff fractions to control. (The enclosure to this despatch23 shows the action which the Ministry of Hacienda will take with respect to the fractions now subject to import control.)

In addition to import controls, there can be no question but that further tariff increases are on the horizon.24 It is hoped that the Trade Agreement conversations may take place before the Mexican Congress reconvenes, since much can be done to bring home to the Mexican authorities the need for careful scrutiny and analysis of the requests which are being received from Mexican manufacturers for higher duties. It is in this field that the Embassy desires to suggest that the most careful study be given by the Department to the stand which it is to take with respect to tariff increases. Mexico cannot have factories unless those factories receive protection. This is true with respect to both old and new industries and it can be stated, without too much fear of successful contradiction, that no factory in Mexico could long exist without tariff protection. The Embassy believes that the Department could achieve more concrete and practical results by attempting to convince Mexico of the need for restricting protection to a minimum rather than to oppose tariff increases per se. The latter policy will inevitably force Mexico to employ other devices such as quotas and import controls. It will be found difficult during the conversations to be held in Washington to answer specific Mexican statements to the effect that if the United States must protect its manufacturers, there is even greater reason for Mexico to follow the same policy. In the course of the studies which the Embassy has carried out, it is interesting to note that whereas the approximate ad valorem equivalent of Mexican duties on plywood range from 2.5% to 18%, the American tariff has a rate of 40%, metal furniture in Mexico pays from 28 to 81% ad valorem, whereas the American rate is 45%; refrigerators pay from 9 to 13% in Mexico as against 25 to 45% in the United States; sanitary ware duties range from 16 to 40% in the case of Mexico and from 22 to 70% in the case of the United States.

The general opposition to tariff increases and the protection of industry will not impress the Mexicans. They believe, rightly or wrongly, that the solution of the problem of the standard of living lies in the promotion of industry. Their present thinking is emotional [Page 1046] rather than analytical. In their enthusiasm for industry as a cure-all for their economic future, they have partly, if not entirely, lost sight of their dependence on international trade and of the need for solving their agricultural, transportation and labor problems if the contribution of industry to the development of their economy is to be fully effective. If the Department can succeed in convincing the Mexican Government that proper perspective will, in the long run, assure the greatest degree of prosperity and, with respect to industry, encourage rather than discourage proper and reasonable protection, more good can be accomplished than through following any other policy. Likewise, if the Embassy were authorized to follow a similar policy, its efforts would be more effective than has heretofore been the case.

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

Respectfully yours,

For the Ambassador:
Merwin L. Bohan

Counselor for Economic Affairs
  1. William L. Clayton, Under Secretary of State for Economic Affairs.
  2. Not printed.
  3. According to despatch 920, August 26, 1946, from Mexico City, “the Mexican Government seems to prefer import restrictions, which can be effected by the Ministry of Finance, to tariff increases, which must be made by Congressional action. The former are certainly more immediately effective, and can probably be more easily justified.” (612.0031/8–2646)