Foreign Relations of the United States Diplomatic Papers, 1940, The American Republics, Volume V

812.6363/6829

The Mexican Minister for Foreign Affairs (Hay) to the American Ambassador in Mexico (Daniels)

[Translation]⁶⁷

Mexico, May 1, 1940.

Mr. Ambassador: I have the honor to refer to the note sent on the third of last April by the Government of Your Excellency to the Ambassador of Mexico in Washington. In it Your Excellency was pleased to state that during recent years different matters have arisen between the Government of Mexico and the Government of the United States, some of them of notable interest, the equitable and friendly solution of which would benefit the peoples of the two countries, and that, with a view to arriving at the solution of such matters and to simplifying their prompt settlement, Your Government had suggested a comprehensive and immediate study of the same.

It is added that at that moment the expropriation of petroleum properties belonging to American citizens took place, for which no payment whatever has been made, nor is there any prospect of payment even though the Mexican Government has manifested on various occasions its disposition to pay, as well as its capacity to do so. Once more the Government of the United States admits the right of expropriation which for reasons of public utility pertains to every sovereign State, adding that such right is united to and conditioned by the obligation to make an effective, prompt and adequate compensation. For this purpose, it is recalled that in a previous note the government of Your Excellency stated that the structure of international relations in its different phases rests in the respect of governments and peoples for reciprocal rights, according to International Law, and that a prompt and just compensation was part of that structure; a principle professed by all the governments of the world and to which the Government of Mexico has lent its support.

It is correct, as the note affirms, to which I am replying, that the expropriation of the properties of the petroleum companies happened precisely when the prospect of an agreement on certain pending questions seemed to be presenting itself, but the moment was not chosen by the Mexican Government, which found itself obliged to act due to well-known circumstances.

Notwithstanding that in the note which I am answering, all matters pending settlement aforementioned are not detailed, it should be remembered that important questions exist between both Governments for an immediate and equitable adjustment of which the Mexican Government has shown a special desire; their solution should be attempted immediately, as there is no justified motive for subordinating other important questions to that of the petroleum case.

It is imputed that Mexico in spite of having declared its support of the principle of the “right of an equitable and prompt compensation for the properties expropriated”, has not carried this into practice.

In this regard, my Government sees itself obliged once more to insist on what it has constantly reiterated and in every manner, that is, its resolution to pay suitable indemnity, and it would appear unjust to maintain that Mexico has not complied with the obligation contained in that principle merely because it requires, as is obvious, that the amount it is to pay must first be established. The frequent arrangements in daily transactions between private individuals, the decisions regarding the manifold controversies which are brought before local courts in suits for compensation, and among which some very important decisions could be cited, for example, those of the Courts of the United States and the arbitral awards regarding differences between States, prove in an overwhelming manner that the obligation to pay is not a requirement until after the amount to be paid is known and established by some means.

The failure to meet that obligation can be attributed to the companies themselves which have systematically refused to have the value of their properties fixed, whether in a friendly manner proposed by Mexico by means of private negotiation or before competent courts to which my Government, more desirous than the other parties interested in concluding this matter, has entrusted the task of fixing by means of expert appraisers the value of such properties according to its laws.

This decision had its origin in the attitude of the companies which have obstructed, by all the means in their power, the establishment of the amount of the compensation, the indispensable requisite to effect payment. By certain activities of the companies, as well as by publications which they have distributed, it can be seen that their efforts have ever been directed towards delaying the solution of the conflict and these have caused serious economic damages to Mexico and to the commercial relations between both countries; the companies even having cherished the hope that these differences, which should not amount to more than a controversy between the Government and a group of private enterprises, would weaken the friendly ties which unite our two peoples.

Based on the foregoing indisputable facts, it cannot be denied that my Government has shown its utmost respect, by its legal dispositions, to the principle of compensation, as well as its resolution to put it into effect. In a conciliatory spirit, it has avoided introducing into this matter the point of view supported and confirmed by numerous cases that there is not, in International Law, any accepted universal policy in theory or in practice that makes obligatory the payment of immediate compensation, and therefore that immediate indemnization does not constitute an inherent element or a condition to the right of expropriation. Nevertheless, though on different bases, it is pleasing to my Government to recognize that there does not exist any disagreement with the Government of your country regarding the obligation of making payment of due indemnization as imposed on the Mexican Nation by its own laws.

In referring, in the note that I am answering, to the affirmation that the award of the Mexican Courts cannot be reassuring, I suppose that has reference only to the time which the procedure of evaluation would require. The note of Your Excellency also states that two years have elapsed since the expropriation of the petroleum properties was effected and that up to now no settlement has been reached. It is true that delays have existed in the legal procedure intended to determine the value of the expropriated properties, but it is to be observed that such delays have been due to the fact that my Government has had to wait until the terms stipulated by law have expired and these terms have been caused by various omissions, measures and recourses taken before the courts by the companies themselves, with the result that the courts have only been able to make their decisions relative to the legal recourses interposed by the companies within the last few days. Nevertheless, in this respect I should state that, notwithstanding the above, the legal procedure of evaluation has advanced considerably within the legal terms and soon will be finished.

Moreover, the good offices of your Government had been employed in an effort to seek other methods of settlement suggested by the companies which excluded payment from consideration and, therefore, the determination of the value of the expropriated properties, as the companies have persistently and uninterruptedly claimed the illegal return of their properties.

The Government of Your Excellency has insisted upon other occasions in sustaining the opinion that expropriation without a just and prompt compensation is confiscation and that it does not cease to be because there may exist the express desire to pay some time in the future. Mexico does not consider itself to be in such a situation, since it has not only expressed its desire to pay but has unequivocably expressed its willingness to do so, having done everything on its part in accordance with its own laws, to the end of establishing the sum to be paid.

It is mentioned, in the note signed by His Excellency, the Secretary of State, that during the last 25 years American interests in Mexico have suffered at the hands of my country’s Government, mentioning to this effect, besides the cases mentioned previously, that my Government is not up to date in the service of its foreign debt and the railroad debt. I consider that the suspension of said services does not constitute an exceptional case in the world, since the phenomenon results from causes of a general character, but further still, I should state that the possible renewal of said services was, before expropriation, in a state of very advanced negotiations and if they were suspended it was due to the campaign against Mexico in which the petroleum companies, with the help of some Governments, employed, among other measures, the boycott to totally prohibit the sale of our petroleum in other countries or else to considerably restrict it by means of imposing tariff barriers, especially those called quotas, placing an appreciable limitation on the possibilities of payment by Mexico.

The Government of Your Excellency concludes proposing that both Governments agree to submit to arbitration the petroleum question, investing a court of justice with the necessary authority, not only to determine the amount to be paid to American nationals deprived of their properties, “but also the means so that its decision may be executed and to assure that an effective and adequate compensation be soon paid”.

With this in mind, the Government of Your Excellency makes an appeal to continental solidarity for the principle of arbitration, its use being more commendable because it comes at a time when an increasing contempt for order appears to be in the ascendent and there is a tendency to substitute force for peaceful measures in the friendly solution of these matters.

It pleases me to recognize that Mexico concurs with the ideas of the Government of Your Excellency in a manifestation of its persevering and firmly renewed faith that the moment will come when force will be eliminated as a means of resolving conflicts between States, using only the pacific means adopted by our Continent. If a country of America has constantly maintained its faith in arbitration, it has been Mexico, which has always scrupulously fulfilled the arbitral decisions, even in those cases where the award had been adverse, as in the recent case of Clipperton Island;⁶⁸ neither has it failed to recognize the utility of using this means of settling international differences, even though as in the case of Chamizal, an award⁶⁹ which was favorable to it has been pending fulfillment on the part of the Government of Your Excellency since 1911.

Nevertheless, my Government does not believe that arbitration should be accepted unless the Nation has fully exercised its rights of sovereignty through the action of its tribunals and it can be proved that denial of justice exists.

In support of this principle, the protection of foreign interests has been clearly defined, not only by the most reputable authorities of the Continent, but by its normal inclusion in International Treaties.

The Convention of January 29, 1902,⁷⁰ relative to the Rights of Foreigners devotes itself to the principle of exhausting local recourse and to the procedure by diplomatic channels, that is to say, the interference of a Government, only in those cases of manifest denial of justice, undue delay or evident violation of the principles of International Law. The Convention of February 20, 1928,⁷¹ signed at Havana, relative to the Conditions of Foreigners clearly establishes the principle of the submission of foreigners to national jurisdiction and to the local laws.

In the reservation to the Arbitration Treaty signed at Washington in 1929,⁷² Mexico maintained that suits which fall under the jurisdiction of the tribunals will not be subject to arbitration proceedings unless there exists a denial of justice, and until the sentence dictated by the competent national authority passes to the category of something judged. Mexico was supported in this viewpoint by an important group of American countries, among which Colombia can be pointed out, which nation took the position that with the exception of a case of denial of justice, arbitration is not applicable when the judges and tribunals of the State, in accord with their legislation, are competent to solve or decide the controversy. Ecuador excepted from arbitration pecuniary claims of foreigners who had not previously exhausted their recourse to the courts of the country. El Salvador stated that pecuniary claims against the nation shall be decided by its judges and courts as it was their function to hear such cases, and that International Arbitration should only be resorted to in case of denial of justice. The Dominican Republic took the position that controversies relative to questions which are within the competency of its own courts shall be referred to the jurisdiction of arbitration only in accordance with the principles of International Law. Venezuela excluded from arbitration those matters which in conformity with the Constitution or the Laws of Venezuela correspond to the jurisdiction of their courts and, especially those relative to pecuniary claims of foreigners, holding that arbitration should not be resorted to in such matters until the claimant has resorted to all legal recourses and it would appear that there had been denial of justice.

Chile did not accept obligatory arbitration for those questions which, being of the exclusive competency of national jurisdiction, the interested parties attempt to remove from consideration by the proper judicial authorities, unless such authorities refuse to resolve any action or exception which any foreign individual or juridical person presents to them in the manner established by the laws of the country. Bolivia considered that those questions which in conformity with International Law correspond to the competency of the Nation can be excepted from the stipulations of the Arbitral Agreement, and Uruguay stated that arbitration was only proper in cases of denial of justice when the national courts have competency according to their own legislation.

The foregoing reveals that the unanimous will of the Continent has manifested itself in the sense that international action in favor of foreigners is proper only when internal legal recourse has been exhausted and a case of denial of justice can be cited.

Consistent with the criterion above expressed, the Arbitration Treaty, signed in Washington, which embodies the conviction of the American States regarding this matter, specifies as subject to arbitration differences of an international character and definitely excludes those of a domestic character, that is to say, those which can be dealt with and resolved by local courts.

In view of what has been stated and faithful to the principles which my Government has invariably sustained, my Government considers arbitration incompatible with said principles, as the matter under discussion is of a domestic nature and is about to be resolved by the authorities of Mexico. I make known to Your Excellency that my Government has authorized a private and direct settlement with the “Sinclair” group which represents approximately forty percent of the investments made by American citizens in the petroleum industry, and that, accepting as final the act of expropriation, discussion will be limited to total amount of compensation and the conditions of payment within a reasonable time, recognizing the justification of the Mexican point of view. Regarding the other American companies, my Government reiterates its disposition to arrive as soon as possible at a just and acceptable settlement in the event that they may prefer, prior to the decision of the Mexican Courts, to enter into direct negotiations regarding the indemnization which should be granted them and terms of payment, and, therefore, they may follow the same procedure, in case they are really disposed to settle this question; with the understanding that, as stated in the note Your Excellency delivered that it is a point of vital interest to the American petroleum companies that assurances be given regarding the payment of the compensation, my own Government is disposed to effect said payment immediately after an agreement has been reached regarding the corresponding indemnization.

Regarding the question of land, Your Excellency’s Government calls attention to the expropriation of properties which has been effected in large scale since 1915, according to the agrarian program; that from the claims presented to the General Commission, those affected have received nothing, but that at the present time efforts are being made toward a solution of those arising from 1927. I desire to call the attention, regarding these last claims, to the fact that my Government has delivered a considerable sum for the payment of these claims, but up to this moment the American Commissioner has not presented a single demand duly proven which might have been discussed and decided by the two Commissioners.

Those claims made before 1927 and which have been presented by the Governments of Mexico and the United States in the name of the Mexican and American claimants, respectively, are subject to an agreed procedure accepted by both Governments and are subject to covenants defining terms which have been extended several times upon the request of Your Excellency, and if the American claimants have not yet received any compensation for this reason which also is the case of the Mexican claimants, it is due to the fact that the Arbitration Commission has not yet decided regarding said claims. It is not a case, therefore, of demandable obligations, but of contentious credits, the evaluation of which it has not been possible to determine, it not being known, for that reason, which one of the two countries is going to be the debtor and which one is to be the creditor.

It cannot be maintained, therefore, that Mexico has in any manner obstructed the solution of the claims of the General Commission, since from the initiation of its work, my Government has been able to demonstrate, on numerous occasions, its desire to reach as soon as possible an evaluation of all the registered claims.

In view of the above, it is set forth with obvious clarity that in both cases, that of the petroleum properties and that of the General Claims Commission, reasons foreign to the will of my Government have prevented the compliance of its obligation to compensate American citizens.

The Government of Your Excellency makes the proposition to submit to an arbitrator, as indicated by the Protocol of 1934, the demands not settled which are subject to the Convention of 1923, or immediately proceed to the negotiation of a global arrangement for the resolution of land claims, in accordance with the Protocol. In this regard, I express to Your Excellency that my Government agrees to immediately proceed to the negotiation of a global arrangement. My Government believes, nevertheless, that the Protocol in force is not applicable to the present situation, since said Protocol foresaw the case in which the Commissioners could not agree, but did not foresee the case of claims not being discussed or decided. Therefore, said arrangement should be negotiated by the Commissioners themselves, with absolute freedom and with the desire to reach a prompt understanding, and if results are not obtained, my Government, from that moment on, is ready to negotiate the terms of a procedure which would permit the prompt and definite solution of this matter.

My Government indicates to the Government of Your Excellency the desirability of renewing the conversations that were suspended upon the presentation of the petroleum case, in order to discuss and decide other matters pending between both Governments, because the Government of Mexico considers that the prompt solution of all of them will contribute favorably to strengthen the good relations between both countries.

Please receive [etc.]

Eduardo Hay

67. A different translation of this document is printed in Department of State Bulletin, May 4, 1940, p. 465.
68. Arbitral Award of His Majesty the King of Italy on the Subject of the Difference Relative to the Sovereignty over Clipperton Island (France–Mexico), January 28, 1931, The American Journal of International Law (1932), vol. 26, pp. 390–394.
69. Foreign Relations, 1911, p. 573.
70. Presumably the Treaty of Obligatory Arbitration between Argentina, Bolivia, the Dominican Republic, Guatemala, Mexico, Paraguay, Peru, El Salvador, and Uruguay, signed at Mexico, January 29, 1902, British and Foreign State Papers, vol. xcv, p. 1009.
71. Convention between the United States of America and other American Republics concerning the Status of Aliens, signed at Habana, February 20, 1928. Department of State Treaty Series No. 815; 46 Stat. (pt. 3) 2753.
72. Signed January 5, 1929. For text, see Foreign Relations, 1929, vol. i, p. 659; for reservations mentioned below, see ibid., pp. 664–667.