206. Memorandum From the Officer in Charge of Mexican Affairs (Hughes) to the Assistant Secretary of State for Inter-American Affairs (Holland)1
SUBJECT
- Outline of Problems to be Discussed with Mexican Ambassador2
In the light of our further conversation on May 23 with Ambassador White and Messrs. Newbegin and Neal, I have revised the outline of problems which you wish to discuss with Ambassador Tello.
1. Cooperation in Defense Matters
Separate memorandum prepared because of its high classification.3
2. Bilateral Air Transport Agreement
Efforts since 1946 to negotiate a bilateral air transport agreement have failed because of Mexico’s refusal to give up monopoly on the Los Angeles–Mexico City route of Compañia Mexicana de Aviación, and because that Government insists upon protection for its airlines through monopolies or other means. Restriction on the number of flights to Los Angeles (3 a week) was lifted by the Civil Aeronautics Board after the Mexicans had assured us if we would “show our good faith” by doing so, they would then agree to a bilateral. The Miami route was obtained for Aerovias Guest by the same manner. The Mexican Government’s latest proposal sent to Mr. White by Secretary of Communications Lazo on May 3rd is a very definite step backwards in that it requests even more than before. The United States desires are not clear at this moment because of the [Page 657] CAB’s most recent letter which will require clarification. Latest information is that CAB will withdraw the letter.
3. Mining Industry
Nothing has been done to encourage large scale exploration and development, badly needed to assure Mexico’s economy, and existing large companies, principally American, are overtaxed.
4. Investment Policy
Although official Governmental attitude is one of encouragement for foreign private investment, the Administration, in an attempt to conciliate those who take an opposite view, has adopted an equivocal position, namely, that foreign capital should complement rather than supplant domestic capital in economic development. Certain Cabinet officials are strongly opposed to foreign private investments in Mexico, and the National Chamber of Transformation Industries and left-wing groups in general are carrying on a strong campaign against such investments. This campaign follows closely the Communist anti-American line.
A related problem is private ownership versus Government participation in industrial development. The immediate case in this category is the Olin–Mathiesen project for a fertilizer plant. Early reports indicated that President Ruiz Cortines favored substantial Government participation (as in the case of existing plants), although more recent reports, as yet unsubstantiated, are to the effect that a change in policy has occurred and that the fertilizer project will be left to private capital. (According to Allen Ellis the fertilizer project is not at present being pressed because the Texas Gulf Sulphur Company, affiliate of Olin–Mathiesen, is temporarily withholding participation pending outcome of negotiations for additional concessions for land in the Isthmus of Tehuantepec. The Embassy reports information indicating Mexican Government is interested in several small plants rather than a large one in the Isthmus as contemplated by Mathiesen and that Government may proceed with the Monclova plant with Montecatini participation.)
5. Import Restrictions
Mexico’s policy with respect to imports is based upon the full and effective protection of domestic industries and of its balance of payments position. In the implementation of this policy, any product which is to the slightest degree competitive with articles produced in Mexico is considered to be a luxury or non-essential import, and its importation is restricted or prohibited as a result of increased tariffs or a system of import licenses, arbitrarily administered. The restrictions are often manipulated at the discretion of authorities as a [Page 658] means of curtailing or prohibiting the importation of selected products, and they are not always applied as a considered policy of industrialization but at times have been motivated by political pressure or nationalistic urging. These restrictions limit the operation of free competitive enterprise in Mexico, they tend to affect imports from the United States more drastically than those of any other origin, and they reduce or destroy important Mexican markets for United States products.
While numerous complaints have been received with respect to actual or rumored restrictions, it is believed that the major problem for United States exporters is found in the uncertainties, delays and confusion of the system which is applicable to a constantly expanding list of articles. Items which have been the subject of recent complaints by American exporters, with a brief statement of the circumstances, as known to the Department, are:
Paper: Mexico is being increasingly selective in the types and grades of paper for which import licenses are issued. This has resulted in the elimination of imports of various qualities and types of paper—bond, ledger, onionskin, manifold and clay coated book paper being examples—which are not duplicated by Mexican paper mills. The reason given for refusal is that substitutes are available in Mexico, even if the quality is not the same.
Paper cartons for wet-packaged frozen shrimp: This complaint was based upon a report that the importation of this article was to be prohibited and that the quality of a substitute Mexican product was not acceptable for the purpose.
Electric concrete vibrators: This equipment was reported to have been placed under license although it is not manufactured in Mexico and is essential in construction work.
Wood-cased pencils: The United States manufacturer claimed that his small but important Mexican market, built up as a result of long years of effort, has been cut off by refusal of Mexican authorities to issue import licenses.
Linoleum and felt base rugs: No comparable merchandise is manufactured in Mexico, but, in line with the primary purpose of the decree of June 5, 1954 (subjecting many items to import control) to safeguard Mexico’s foreign exchange position by curtailing drastically the importation of all non-essential and luxury items, it was determined officially that these articles are not essential to the economic welfare of Mexico and that Mexican consumers can easily get along with local rugs and carpeting.
Diesel motors: The Embassy reported on March 23 that the Mexican association of machinery importers and distributors were very much disturbed because Diesel Nacional, S.A., about to go into production, had petitioned Economía to restrict the importation of all machinery equipped with diesel motors ranging from 8 to 60 h.p. This request could be implemented easily under existing licensing requirements for machinery. The company claimed it would be in a position to supply all of Mexico’s requirements for diesel motors of those sizes. The Embassy commented it was not at all unlikely that [Page 659] action would be taken by the Ministry to restrict the importation of equipment with motors installed without determining whether or not the local product can be substituted. No report has been received that imports of machinery with motors installed have actually been restricted.
Pumps: Economía has been increasingly restrictive in permitting the importation of pumps, and in general all license applications covering pumps that are also made in Mexico are denied. There are a number of pump manufacturers in the country, with estimated capital investment of 40 million pesos. The five-member committee which passes on license applications consists of two representatives of pump manufacturers, two pump importers and distributors, and a representative of Economía who, having no knowledge of pumps, always decides with the manufacturers’ representatives.
No one in the Government seems to be seriously preoccupied with the possible damage to Mexico’s economy of the policy of favoring domestically made goods regardless of quality and adaptability to the needs of individual users.
We have not protested these restrictions, although we have been urgently requested to do so by affected interests, on the ground that there is no trade agreement between the two countries which would provide a legal basis for doing so. At the same time, however, the Mexicans have not hesitated to make strong representations whenever the possible restriction of one of their exported products is the subject of consideration by us. This has occurred in connection with tomato inspection and marketing procedures, the peanut quota, sugar, plywood, and lead and zinc.
You and Ambassador White agreed you will say to Ambassador Tello that the Department recognizes Mexico’s necessity for controlling dollar imports but that you would request, because of individual hardship cases, that the Mexican Government discuss the matter before taking action, referring to the United States policy of public hearings before taking definitive action.
6. Radio Broadcasting
Mexican telecommunications officials have been reluctant to set a date to reconvene conversations suspended last December looking toward the conclusion of an agreement on radio broadcasting problems. These problems were regulated by the multilateral North American Regional Broadcasting Agreement until it expired in 1949. A new NARBA was negotiated in 1950 but Mexico has refused to become a party to it, and the United States has not yet ratified it. The only regulatory instrument now in effect between the two countries is a bilateral “Gentleman’s Agreement” entered into in 1940 as an inducement to Mexico to sign the first NARBA, and it is more restrictive on United States than on Mexican broadcasters. A [Page 660] provision of the “Gentleman’s Agreement” makes United States broadcasters on certain channels cease operation at sun down in order to give protection to Mexican stations. Absence of an adequate agreement results in Mexican interference on channels to which United States stations have established prior claims through earlier use. Previous attempts to settle the matter have met with failure because Mexico has demanded more clear channels. There is now some slight possibility the Mexicans may agree to resuming conversations in late June or early July. If no agreement is reached the Gentleman’s Agreement will probably be denounced by the United States.
7. Proposal to Buy Gas from PEMEX
A United States company has offered to buy gas from PEMEX but its efforts to enter into contract have been unsuccessful. A report from the Embassy in Mexico City said Texas Eastern proposed gas contract was for
| 200,000,000 | cubic feet daily | |
| at | 14 | cents per thousand |
| $28,000 | daily | |
| x 365 | days per year | |
| 140000 | ||
| 168000 | ||
| 84000 | ||
| $10,220,000 | yearly income. |
Our latest information is dated March 23, 1955. At that time the Embassy reported that PEMEX had received formal assurances that the United States Federal Power Commission will not construe a United States Supreme Court decision in the Phillips case as being applicable to the contemplated contract—that is, to control prices and conditions under which PEMEX could sell its gas and Texas Eastern buy it. That being the case, Texas Eastern authorities went to Mexico and PEMEX stated in late March that the contract probably would be signed “in the near future”.
The Embassy also commented:
“This contract could eventually place PEMEX in a better financial position …4 however, it is not seen how this contract can yield any prompt financial results because construction of the gas absorption plant at Reynosa has been suspended because of the existing financial stringency.”
A way out would be to obtain advance funds from the gas purchaser, who could recover investment through discount on gas to be delivered.
8. Clearance for Publication of Documents in Foreign Relations for 1938
Last fall the Embassy in Mexico City submitted to the Mexican Foreign Office galley proofs of correspondence exchanged with the Mexican Government in 1938 concerning the expropriation of the petroleum industry and requested their concurrence to publication in Foreign Relations, in accordance with usual courtesy practice. Later I gave a set of the galleys to the Mexican Embassy here and assured them that we would adhere to a promise not to publish a telegram dated March 27, 1938 which we promised the Mexicans in 1938 we would not publish. I requested an early reply since the publication of the particular volume was being held up. I have made a number of inquiries, all without success. We are under some pressure to publish the volume for 1938, and if the Mexicans don’t give us an answer, we will go ahead and publish our documents without their side being presented by publication of the Mexican correspondence addressed to us.