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1940. Oil: Mexico's Position


A STATEMENT BY
THE BUREAU OF INFORMATION
OF THE MEXICAN GOVERNMENT
FEBRUARY, 1940


Distributed by the
CONSULATE GENERAL OF
MEXICO IN NEW YORK
70 PINE STREET
NEW YORK, N. Y.




Printed in U.S.A.

                                                          1
                                                            

     The Standard Oil Company of New Jersey has distributed a 
booklet under the title of "The Mexican Oil Seizure", with the 
manifest purpose of conveying to the mind of its readers the 
impression that the government of Mexico, in expropriating the 
properties of the oil companies, has acted in violation of the
laws of Mexico and of the principles of International Law; and
also, that in the negotiations conducted with some of the oil 
companies for the purpose of finding a solution to the problem, 
the Government of Mexico, from motives which are likely to be 
misunderstood, has repudiated its offers formally propounded, 
thereby making impossible any kind of settlement.

     Out of respect for public opinion we will set forth in a sub-
sequent special publication the misrepresentations and erroneous 
interpretations made by the Standard Oil Company in its pamphlet 
as to the origin of the dispute and as to the negotiations in which 
the agents of the expropriated companies participated.

     For the time being, reference will only be made to the chief
misrepresentations which are found in the booklet:

     It is stated that the oil companies had an investment in
Mexico of several hundred million dollars and that the Mexican
Government has admitted its financial inability to pay. The con-
clusion drawn in the pamphlet is that the companies had no other 
recourse than to request diplomatic protection from their own 
governments in support of their claims. These arguments are 
based on the contention that Mexico could not legally expropriate 
the properties because of its obvious inability to pay prompt and 
adequate compensation to the owners. The conclusion is false, 
because it is based on two premises both of which are equally 
false:

     a) It is not true that the value of the properties of the oil 
companies lies between 262 million dollars as a minimum 
and 500 million dollars as a maximum, as is alleged in the 

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pamphlet. Such figures were taken, as therein stated, from an
article published in the magazine "Hoy" of July 31, 1939, the 
author of which is Mr. Luis Cabrera, an attorney of Mexico City.

     As an instance of the hasty manner in which the writer of
that pamphlet proceeds in attempting to establish his assertions, 
a literal translation of what was really said by  Mr. Cabrera 
follows:

     "I shall  therefore take at random 300  million dollars as
representing the value of the various properties of the 17 com-
panies, the expropriation of which has been decreed; and I shall 
fix the further sum of one hundred million dollars as the value 
of the properties that must yet be expropriated in order to com-
plete the socialization plan of the oil industry. The total, there-
fore, is four hundred million dollars which Mexico must pay,
theoretically, right down and in cash. If anybody was to tell me
that this figure is arbitrary, I would answer to him that indeed it 
is, and that it is devoid of any scientific basis; but that all the 
other figures which are mentioned are just as arbitrary, etc...."

        The writer of the article published in "Hoy' simply figures
the sum of 262 million dollars as within Mexico's capacity to pay.

     The Mexican Government characterizes as enormously ex-
aggerated the figures which the companies have spread abroad 
regarding the value of their properties. Inasmuch as there has 
been no appraisal up to the present time, the only basis available 
for valuation is the company's own figures in the company's own 
books. According to the consolidated balance sheets of all the 
expropriated companies on March 18, 1938, the value of their 
permanent assets in Mexican pesos, amounted to 112,899,890.44.

     It seems proper to point out that in this figure the American 
interests represent only a very small part of the total capital 
investment as well as of the actual production, because those com-
panies, bent upon amortizing their capital, limited their activities

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to exploiting wells already in operation, Without undertaking by
means of new investments to increase production, or even to 
maintain the level previously reached. It is a matter of public 
knowledge that the production of the American companies reveals 
a definite decrease, owing to a complete absence of exploration 
and exploitation works of any importance, as well as to the re-
duced activity of their refineries, pipe lines and other installations.

     The companies have systematically refused to discuss the
value of their properties. Their representative admits that he 
proposed during the negotiations with the Government that the 
question of appraisal should not be considered. Such an attitude 
on the part of the companies is due to the fact that since they can 
not deny our right to expropriate private property with, naturally, 
payment of just compensation, they are actually seeking to create 
the impression that Mexico could not lawfully carry out the 
expropriation because of its inability to pay the fantastic sum of 
millions of dollars which the companies arbitrarily and premature-
ly assigned to their properties.

     b). It is not true that Mexico has recognized her inability
to pay, but, quite to the contrary, the Mexican Government has 
repeatedly declared its willingness to pay to the companies the 
full value of their properties. The assertion of their represen-
tative that the Government of Mexico promised to pay compen-
sation to the companies with only a part of the net proceeds from 
the oil operations of the expropriated properties, is likewise un-
true, for the Government has declared on different occasions its
willingness to place at the disposal of the companies a substantial 
part of all the oil products destined for export, namely, a portion 
of the total production, including the oil reserves which belonged 
to the Government of Mexico prior to the expropriation and 
which have a great potential and actual value.

     The fact that Mexico has suspended payment of its foreign
debt does not mean, as is suggested in the pamphlet, that Mexico 

                                                          4

is unable to pay for the oil properties which were expropriated, 
inasmuch as it actually has at its disposal, an industry obviously 
productive, the income from which shall be devoted preferentially
to the full payment of the compensation.

     Among the most important nations of the world there are 
many who have postponed payment of some of their obligations, 
and it has not yet occurred to any one to say that such countries 
are actually suffering a permanent incapacity to meet their ob-
ligations.

     The pamphlet makes reference to the compensation to Amer-
ican citizens for the value of their agricultural lands. In this par-
ticular it is pertinent to point out that an agreement has been 
reached with the Government of the United States whereby a 
commission has been created and is already functioning and that
the Government of Mexico is making annual payments even be-
fore the exact value of the lands has been finally determined.

     In the pamphlet an incomplete and malicious narrative of 
the oil controversy is given, misrepresenting the facts in order to 
fit them to the conclusion which is sought to be reached, and 
which conclusion is that the Government of Mexico always en-
tertained the avowed purpose of expropriating the oil companies, 
taking advantage of various events in the accomplishment of 
that purpose. The evidence justifies no such conclusion.

     It is true, as it is stated in the Standard Oil publication,
that the oil companies were always the object of spirited attacks, 
they being considered as the exploiters of the natural and human 
resources of the country. In this connection, it should be remem-
bered that the agents of the oil companies, over the years, com-
mitted countless rapacious acts such as defrauding the national 
treasury, bribing officials, seeking to impair the political stability 
of the government, and that they even made attacks against 
private property and human life. In fact, they went so far as to

                                                          5

disturb at times the friendly relations between the peoples and
the governments of the United States and Mexico.

     It is also true that the aim of the various Governments of 
Mexico in the last few years was to place under the control of
the Nation, for the benefit of the Mexican people, this important
industry on which the national economy depends to a large extent. 
The methods employed by the oil companies and their attempts to
create a political and economic power stronger than the State 
itself, were deemed prejudicial to public policy in Mexico. Various 
Mexican administrations, including the present one, have had the 
purpose in mind of accomplishing such an aim through a slow 
and gradual process, by creating a national organization to unde-
take the exploitation of the national reserves, and then gradually
increasing the production of the oil lands. This plan was already 
being developed and important results had already been obtained 
when the expropriation took place.

     Why was the Government compelled to change this plan and 
to decree the expropriation, placing all the oil properties in Mexico 
in the hands of a governmental institution? An examination of 
the events which preceded the expropriation proves that the pre-
sent Administration had no other course open to it but the one it
actually followed, thus being obliged to give a different direction 
to its policy from that originally intended. These were the actual  
facts:

     I. The workers demanded from the various companies 
operating in Mexico a revision of their labor contracts. This was
a spontaneous act on the part of the labor unions and constituted 
a normal request, normal not only in Mexico, but in all other 
countries where the workers are granted freedom and where the 
workers' right to organize themselves for the defense of their in-
terests is recognized.

     II. In view of the fact that the Unions and the companies 
could not come to an agreement concerning the conditions of the 
 
                                                          6


new contract, the workers chose to declare a strike. This is, also, a
spontaneous act on the part of the workers and, likewise, a lawful
act in any country where the right to strike is recognized.

     III.  Inasmuch as the strike last for some time and there
was no indication of an early agreement between the parties to the
controversy, and furthermore, as due to the lack of fuel caused
by the strike, it was feared that all economic life in Mexico would
be paralyzed, the Mexican Government deemed it its duty to
intervene in the dispute, in order to bring about a rapid solution
and to prevent a grave danger to the entire Nation.  This was
the first official or governmental action taken by the Mexican
authorities in the controversy between the companies and their
workers.

        IV.  After an unsuccessful attempt was made, first through
the Department of Labor and afterwards by the President per-
sonally, to obtain a conciliation between the parties, the President
suggested to the workers that they should return to their work
immediately, and submit their case to the Board of Conciliation
and Arbitration which is located in the City of Mexico.
        
        The intervention of the Mexican Government to that end is
beyond reproach, from any point of view whatsoever, and was 
inspired by the highest regard for the public interest.
        
        V.  The Board of Conciliation and Arbitration appointed
a committee of three experts to study the different aspects of the
dispute. After having heard a considerable number of expert wit-
nesses on the questions submitted, chosen both by the companies
and the workers, the committee produced a comprehensive and
well-reasoned report which served the Board as the basis for its
decision.

        VI.  It is not true that the award rendered by the Board of
Conciliation and Arbitration conceded to the workers their full
               
                                                          7

demands. The Board took a reasonable course between the de-
mands of the labor organizations and the concessions the com-
panies were willing to grant.  The award, based on the reports
of the experts, decrees that the companies must guarantee certain
benefits to the workers, by way of increase of wages, medical
attention, hygienic dwellings, vacations, payment for extra-time,
extra payment for labor in unhealthy regions, etc., amounting to
the sum of twenty-six million Mexican pesos, in addition to the
amounts covered by the former pay schedules of the workers.

        The statement made by the representatives of the companies
that the net profit of all the said companies amounted to twenty-
three million pesos is false.  The experts showed that the com-
panies had previously earned much higher profits and the Mexican
Government, which now controls the oil industry, is in a position
to declare that the assertion made by the experts is fundamentally
correct.

        VIII.  As soon as the decision of the Board of Conciliation
and Arbitration was known, the companies announced both
in the American and Mexican press, that they were not
willing to submit themselves to the decision of the Board and
that in case the Supreme Court of Justice, to which they had
already appealed, did not grant the application for a review of
the award rendered by the Board of Conciliation and Arbitration, 
they would abandon their fields, plants, and equipment.

        The Supreme Court, after a careful study, held that the
decision of the Board did not contain any constitutional violations
and that, therefore, it could not be reversed.

        VIII.  Both before and after the Court rendered its decision,
several efforts for conciliation were made by various high officials
and even by the President himself, offering fair and concrete
suggestions to both parties with a view to putting an end to the
dispute. Inasmuch as the companies maintained that the decision
required an expenditure of more than twenty-six million pesos,
                                                          
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the Mexican Government offered to appoint a commission that
would supervise, under the guarantee of the Federal Executive,
the execution of the Board's decision, in order to insure to the
Companies that they would not pay more than the aforesaid
twenty-six millions. The Government also suggested that in order
to clarify the meaning of some of the provisions of the award,
the parties agree to a binding interpretation of those provisions
which the companies feared might deprive them of the neces-
sary freedom to manage their business economically and efficiently.

     At a meeting held in the President's office the companies'
representatives definitely stated that they could not accept the
President's suggestion.

     Under these circumstances, what alternative was there
left to the Government?--Could it permit non-compliance with
a decision rendered by a legitimate authority and confirmed by
the Highest Tribunal of the Country?--Can anyone imagine that
any foreign corporation in any other country would be permitted
to look with contempt upon, and refuse to obey the decision of,
the highest court of the land?--Could the Mexican Government
permit the companies to carry out their threat that they would
close down their plants and stop the entire production of the fuel
used all over Mexico? The Mexican Government, after carefully
weighing its own responsibility, resolved that the public interests
demanded that the oil production should not be suspended and
that, in view of the fact that the owners were not willing to
continue operations, the Government was fully justified in ex-
propriating the oil industry in order that it might be managed
by the State.

     The above proves conclusively that, contrary to what is
stated in the pamphlet, the expropriation was accomplished as
the imperative result of a state of national emergency precipitated
by the companies themselves.
     
                                                          9
     
     The Government of Mexico announced from the very begin-
ning that it would pay compensation to the companies, and the
latter were asked to cooperate in reaching a proper appraisal of
their properties, but this request the companies hastened to reject.
If no payment of compensation has as yet been commenced, the
blame falls upon the companies which have placed every possible
obstacle in the way of arriving at a fair determination of the
value of their properties.

     The Mexican Government, however, still being willing to
reach a friendly solution of the controversy, agreed to listen to
the companies' special representative. Before the latter started
for Mexico, the American press published a statement of a
director of one of the principal companies, containing the bases
upon which the companies would be prepared to enter into an
agreement. The statement in the pamphlet is not correct when
it asserts that these bases were accepted by the Mexican
Government, because, quite to the contrary, such tentative provi-
sions were obviously unacceptable. The granting of the com-
panies' proposals would have created precisely the same situation
which existed prior to the expropriation, and also would have
placed the companies in a privileged position in regard to taxation
as well as in their relations with their workers.

     What the companies demanded was that the Government
should fix in advance the taxes to be paid during the life of the
proposed contract and to establish therein, under the pledge of
the Government, rigid rules to govern the labor relations between
the companies and their workers. Obviously, neither of these
conditions could be legally complied with under the Mexican
Constitution.

     The Mexican Government cannot guarantee to any corpora-
tion that the latter shall not be liable in the future to pay higher
taxes than those provided in a contract. This would amount to
a curtailment of the powers of Congress.

                                                          10

It is also unconstitutional to impose on the workers inflexible
labor standards, as these must be fixed by means of collective
bargaining processes.

     Furthermore, said bases did not take into consideration
the origin of the dispute, to wit, the inability of the companies
to arrive at an understanding with their workers regarding labor
conditions, and the companies' refusal to accept the conditions
which the Courts had recognized as just and reasonable. By what
right could the Government compel the workers to work for the
companies under stipulations arbitrarily fixed between the Govern-
ment and the companies and in direct opposition to a judicial
decision ?

     The companies' special representative thought that it was
possible to arrive at an arrangement whereby the oil industry
could be operated for mutual benefit. This idea was accepted by
the Mexican Government, but when the companies' representative
was compelled to offer concrete proposals, he never was able to
find his way out of vague formulas and declarations of a general
nature.

     The President of Mexico was always of the opinion that any
arrangement based upon effective cooperation would require a
previous appraisal of the properties involved; and, if the Govern-
ment agreed to postpone the appraisal, it did so only for the pur-
pose of determining whether there existed any possibility of a
settlement along the lines above mentioned.

     Not until the time when the parleys were held in Saltillo in
May, 1939, was the attorney for the companies able to abandon
vague formulas and present instead a definite proposal in the form
of a tentative draft of a "Preliminary Agreement". It is, there-
fore, untrue that this latter document was drafted jointly with
the Mexican Ambassador.

     It was considered that in Saltillo definite progress had been
made over the parleys conducted in Mexico City, because for


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the first time that the companies' attorney was actually presenting for
discussion a definite draft of a contract. Unfortunately, the bases
which had already been considered as unacceptable, were substan-
tially unchanged in the draft; but the hope was then entertained
that the companies would realize that it was legally and practically
impossible for the Government to accept such conditions, par-
ticularly those relating to labor.
     
     What has just been stated shows the meaning of the declara-
tion of May 3, which reads:

     "The discussions have been profitable. An effective progress
towards a mutual and satisfactory agreement has been attained...
It is anticipated that in the near future the discussions will reach
a definite conclusion, and it is not necessary to hold new oral dis-
cussions between President Cárdenas and Mr. Richberg.'

     It is inaccurately stated in the pamphlet that in Saltillo the 
opinion was jointly expressed by both parties, that an understand-
ing had been reached on most of the issues involved and that
experts, representing both the Government and the companies,
could draw the contracts laying down the future relations which
would permit a settlement of the controversies between the com-
panies and the Government.

        By merely comparing the text of the joint statement with
its interpretation by the author of the booklet one can readily
discern the discrepancies between the two. It is one thing to
have a profitable discussion and to make progress toward a cer-
tain understanding, and a very different thing to reach a sub-
stantial agreement on most of the points discussed.

     The companies' special representative led his principals into
error if, as inferred from the booklet, he advised them that a 
substantial agreement on all vital points of the controversy had
been arrived at in Saltillo.

     The assertion which is made at the end of the pamphlet
sponsored by the Standard Oil Company is, therefore, both untrue

                                                          12


and impertinent in expressing that, after the Saltillo parleys, the 
President of Mexico changed his mind on the subjects discussed.

     It is not necessary to take up the insidious speculations in
which the writer engages or to try to explain the motives of a 
change in attitude by the President. The President is still of the 
same mind as he was at Saltillo.

        The pamphlet concludes by stating that it has been written
to aid the public in an understanding of the causes which keep 
the controversy alive. In reality, this is only one more chapter 
in the propaganda campaign which is supported mainly by the 
Standard Oil in order to create confusion and to disparage the 
truly high ideals which actuate Mexico. The companies have not 
made, as they allege, any serious attempt to arrive at a satisfactory 
solution of the conflict which they themselves brought about, 
limiting their action, as a simple reading of the pamphlet demon-
strates, to making proposals which they knew beforehand to be 
impossible of acceptance, in order that they might hold themselves 
out as victims of the obstinacy of the Mexican Government.

     Both in the notes from the American Government to the 
Mexican Government signed July 31 and August 22, 1938, and 
in the statement made by Undersecretary Welles on August 14, 
1939, to which document the pamphlet refers, there is expressed 
the doctrine that the expropriation of private property, for public
use, is legitimate, provided that prompt, just and adequate com-
pensation for such property is granted. This doctrine is concurred 
in by Mexico. The Government of Mexico, in expropriating the 
properties of the oil companies and in rejecting the demand for 
restoration made by the latter, has not declared, as it is falsely 
stated in the pamphlet, its inability and unwillingness to make 
prompt, just and adequate compensation.

     Therefore, the actual solution of the controversy in accord-
ance with the principles of law, lies in reaching a determination

                                                          13

as to what is a just and adequate compensation, namely, in fixing
the value of the expropriated properties. Mexico has continuously
sought a solution along these lines, but has failed so far due
entirely to the persistent refusal of the companies.

     The laws of Mexico provide that when a friendly agreement 
in controversies of this character cannot be reached, the Courts
shall be open for the ascertainment of value, after hearing the 
opinion of experts appointed by both sides. In the event either 
side fails to appoint such experts, the Courts shall appoint experts 
for it. The companies, following their inveterate attitude of 
contempt for the laws of the land in which they have operated, 
have refused to appoint their own experts, and so, the appraisal 
must be made by experts appointed by the Mexican Courts.

     Without availing themselves of the remedies provided by 
Mexican law and without resort to the Mexican Courts, the 
companies are now seeking to becloud the issues for the very 
purpose of avoiding a settlement by the means prescribed by the 
laws of Mexico and sanctioned by the  principles and doctrines of 
International Law.