Ludwell DennyCHAPTER FOUR
SECRETARY FALLS friend, Mr. Edward L. Doheny, was the original oil tsar of Mexico. He had gone to the southern Republic with small capital and in 1900 acquired the Hacienda del Tulillo of 280,000 acres for $325,000. Soon he was buying cheaply or seizing other lands, after providing financially for friendship of the dictator, President Diaz. By 1904, when Mexican production was 220,000 barrels, Mr. Doheny owned most of the important wells. Production rose to 14,000,000 barrels in 1910. The Potrero del Llano well began running 150,000 barrels a day. The Cerro Azul gusher broke the worlds record with 200,000 barrels. Doheny production at times was worth more than $1,000,000 a week.
President Diaz, watching the American wild-catter grow rich, decided he must check Mr. Dohenys increasing domination of Mexico. The dictator decided this could be accomplished with most gain to himself and with most harm to the Americans by bringing in the British. So he granted favoured concessions to Lord Cowdray. Mexican Eagle, the Cowdray company, had 58 per cent of the total Mexican production in 1910.
There followed a period in which Mr. Doheny and Standard fought the Cowdray interests with every conceivable weapon. It was Mr. Pearson [Lord Cowdray] who, in spite of all difficulties and all Standard Oils intriguesthe Americans even hired bands of Mexican brigands, who destroyed Pearsons oil-pipes and set his wells on fireheld on in Mexico, and thus prevented that country from altogether turning into an economic province of the United States, Dr. Anton Mohr, the Norwegian geographer, wrote in his book The Oil War.50
The Americans had reason to believe that the overthrow of Diaz after 35 years reign was necessary to prevent British ascendancy in Mexican oil. According to the British, Doheny and Standard agents directly caused the 1911 Madero Revolution which unseated Diaz. Testimony of several witnesses at the U.S. Senate Foreign Relations Committee hearings in 1913 tended to show that American oil interests subsidized that revolution. Lawrence F. Converse, an American officer in the Madero army, testified: Mr. Madero himself told me that as soon as the rebels made a good showing of strength several leading bankers in El Paso [U.S.A.] stood ready to advance himI believe the sum of $100,000; and these same men [Governor Gonzales of Chihuahua and Secretary of State Hernandez] told me also that the Standard Oil interests had bought bonds of the provisional government of Mexico. ... They said that the Standard Oil interests were backing them in their revolution. ... [Standard Oil] was to have a high rate of interest and there was a tentative agreement as to an oil concession in the southern states of Mexico.51
The Washington Government, by speedy diplomatic recognition and an arms embargo against Mexican counter-revolutionists, tried to keep President Madero in power. But within two years he was deposed and executed by General Huertathe British favourite. Huerta was openly opposed to the Yankee oil men and generous to Lord Cowdray. The latter confessed he was a subscriber to the Huerta counter-revolutionary loan.
Mr. Wilson had become President in Washington. He was as anxious to block British oil expansion in Mexico as was his Republican predecessor, Mr. Taft. President Wilsons attitude, as reported by his alter ego, Colonel E.M. House, was: We do not love him, for we think that between Cowdray and Carden [British Minister in Mexico] a large part of our troubles in Mexico has been made.52 Minister Carden was trying to get supplies for the British navy, which was being converted rapidly to oil-fuel power under the Fisher program for war with Germany. Colonel House charged that General Huerta rewarded Lord Cowdray with concessions.53 Great Britain and other nations had recognized the Huerta Government, but President Wilson refused on the ground that the United States can have no sympathy with those who seek to seize the power of government to advance their own personal interests or ambitions. At the same time, however, Mr. Wilson extended diplomatic recognition to a similar revolutionary government in Peru.
When the British Foreign Office sent Sir William Tyrrell to Secretary of State Bryan to lessen the tension over Mexico, the latter told Sir William: The Foreign Office had simply handed its Mexican policy over to the oil barons for predatory purposes. The British diplomat replied: Mr. Secretary, you are talking just like a Standard Oil man ... you are pursuing the policy which they have decided on.54 This exchange of diplomatic amenities is recounted in the Life of Page. It was Mr. Page, then American Ambassador to London, who asked:
What the devil does the oil or commerce of Mexico or the investments there amount to in comparison with the close friendship between the United States and Great Britain? The two countries should agree upon this primary principleto leave their oil interests to fight their own battles, legal and financial. No one else in power agreed with the Ambassador.
Mr. Wilson had many tempestuous conflicts with the British Foreign Office over the apparent support given to the Huerta regime by Sir Lionel Carden, the British Minister to Mexico, a support intensified to no small extent by the large British oil companies in Mexico whose influence in London official circles was appreciable, according to Mr. David Lawrence.55
The Democratic and Liberal President was rapidly approaching the position of that heavy investor in Mexico and future dealer in American naval oil reserves, Mr. Fall. The latter was then demanding in the Senate that United States forces be ordered into Mexico to protect American lives and property and lend their assistance to the restoration of order and the maintenance of peace in that unhappy country and the placing of the administrative functions in the hands of capable and patriotic citizens of Mexico.56
While the British Foreign Office was uncovering the Standard pipe-lines leading into the White House and State Department, the American Independents were openly drilling in Congress and the press. Mr. Doheny spoke frankly to the Senate Foreign Relations Committee, which in 1913 was holding hearings on Revolutions in Mexico.
Inasmuch as both Germany and Great Britain are seeking and acquiring sources of supply for large quantities of petroleum, it seems to me that there can be no question but that the United States must avail itself of the enterprise and ability and pioneer spirit of its citizens to acquire and to have and to hold a reasonable portion of the worlds petroleum supplies, declared this pioneer in Mexico. If it does not, it will find that the supplies of petroleum not within the boundaries of United States territory will be rapidly acquired by citizens and governments of other nations. ... This oil field, discovered by Americans ... having a reasonable oil valuation of some billions of barrels, is the source to which the United States must look for the supply of petroleum which will justify the building of a commercial fleet that can compete for cost of operation with any other fleet which the great nations of the world may have or construct.57
At this point a new factor emerged which has since continued to influence United States-Mexican relations. Washington began to worry about the effect on Central America of Mexicos example of nationalist revolution and defiance of Yankee interference. Here was a menace to the muchexpanded and reinterpreted Monroe Doctrine. What of the safety of the Panama Canal? President Wilson presented the Mexican problem to Congress from this angle.
The present situation in Mexico is incompatible with the fulfilment of international obligations on the part of Mexico, with the civilized development of Mexico herself, and with the maintenance of tolerable political and economic conditions in Central America, the Chief Executive said58 And again he added, Mexico lies at last where all the world looks on. Central America is about to be touched by the great routes of the worlds trade and intercourse running free from Ocean to Ocean at the Isthmus. The future has much in store for Mexico, as for all the states of Central America; but the best gifts can come to her only if she be ready and free to receive them and to enjoy them honourably.
Having prepared the ground at home, he instructed United States consuls south of the Rio Grande to convey to the authorities an intimation that any maltreatment of Americans is likely to raise the question of intervention. These instructions were followed by orders from Secretary Bryan to United States representatives to make known to Mexico the Presidents clear judgment that it is his immediate duty to require Huertas retirement from the Mexican Government, and that the Government of the United States must now proceed to employ such means as may be necessary to secure this result.59 In the same month, November 1912, further orders were dispatched to cut him [Huerta] off from foreign sympathy and aid and from domestic credit, whether moral or material, and to force him out. ... If General Huerta does not retire by force of circumstances it will become the duty of the United States to use less peaceful means to put him out. And this was following a relatively peaceful Mexican election in which President Huerta retained office.
Realizing belatedly that Washington would use military force if necessary to unseat the alleged British puppet, London tried to have a hand in picking the next dictator of Mexican concessions. This would have the double advantage of putting the new President partly under obligation to Britain, and at the same time enable the British Government to appear to save helpless Mexico from intervention by the hated Colossus of the North. London therefore proposed that European Powers join in requesting President Huerta to resign, enabling him to get out but to save his face.
Washington had no intention of sharing with Britain its duty of pacifying Mexico. Such a precedent might jeopardize the Monroe Doctrine, not to think of the American oil wells there desired by British Government companies. Secretary Bryan replied to Downing Street that President Wilson warmly appreciates the British proposal which, however, he must reject. The President instead intended to dispose of Huerta by giving American aid to the rebel chiefs. Or, as Mr. Bryan expressed it in his British note: There is a more hopeful prospect of peace, of the security of property and of the early payment of foreign obligations if Mexico is left to the forces now reckoning with one another there. ... He [President Wilson] intends therefore, almost immediately, to remove the inhibition on the exportation of arms and ammunition from the United States.60
The President was less successful at first in preventing Latin American governments from attempting to save Mexico from a Yankee-dictated settlement. But the result was the same. Wilsonian fears regarding the effect on Latin America of the Mexican revolutionary example were materializing. In an unexpected manner, however. Latin Americans apparently had been only mildly interested in Mexican oil and land legislation. But they became exceedingly alarmed over the spectacle of a sister Latin American country as a victim of the United States alleged imperialistic intervention. Their uneasiness increased when President Huerta asserted: Mexico is defending not only her national sovereignty but that of all Latin America as well. When Argentina, Brazil, and Chile, the three strongest South American governments, were moved by Mexican sympathy and a spirit of Latin American solidarity to offer to conciliate the Huerta-Wilson dispute, the American Executive found it expedient to acceptand equally expedient to block the ABC conference at Niagara Falls when it met. The Washington Government unaided was thus successful in putting out President Huerta through direct intervention, and at the same time was able effectively to sabotage South Americas effort to check growing Yankee control in the Caribbean countries.
When the Panama Canal tolls issue came to the fore, Washington was able to force Downing Street, though not the British oil men, to withdraw active support from General Huerta. Mr. Wilson then isolated the Huerta regime by a financial and munitions blockade, later permitting the rebel chiefs Carranza and Villa to get American arms. He used the Tampico flag incident as one excuse for American naval and military occupation of Vera Cruz, although General Huerta had apologized and offered to submit the dispute to The Hague tribunal for arbitration.61
American oil companies did their share in helping the President to get rid of the pro-British Huerta. They refused to pay taxes to his Government, and gave financial support to General Carranza. At the U.S. Senate Committee hearings in 1919 Mr. Doheny expressed the opinion that every American corporation doing business in Mexico extended sympathy or aid, or bothand we extended bothto Carranza. ... It was a well-known fact that the British assisted in the sale of a large amount of Huerta bonds and they were distinctly favourable to the Huerta Government at that time. Our Government had shown its animosity to Huerta and its desire to support his opponents. So that our action was in line with our Government and that of the British [oil interests] was in line with the supposed sympathies of the British Government.62 Mr. Doheny added that he advanced General Carranza $100,000 in cash and $685,000 in fuel credits.
But when President Carranza assumed office he did not reward his American oil friends. Instead he endeavoured to vindicate the 1911 revolution. The Carranza Constitution of 1917 attempted to regain for the Mexican people some of the countrys natural riches which had been parcelled out for a price by the dictator Diaz to foreign companies.
Since 1917 the American-Mexican conflict has centred around the Washington contention that Article 27 of the Constitution, and the laws and decrees putting that Article into effect, are retroactive and confiscatory. The Mexican Government from the beginning denied these charges and defended its sovereign right to enact the disputed measures.
Article 27 provides: The ownership of lands and waters comprised within the limits of the national territory is vested originally in the Nation which has had, and has, the right to transmit title thereof to private persons, thereby constituting private property. ... In the Nation is vested the legal ownership [dominio directo] of all minerals ... petroleum, and all hydrocarbonssolid, liquid or gaseous. ... Legal capacity to acquire ownership of lands and waters of the Nation shall be governed by the following provisions: 1. Only Mexicans by birth or naturalization and Mexican companies have the right to acquire ownership in lands, waters and their appurtenances, or to obtain concessions to develop mines, waters, or mineral fuels, in the Republic of Mexico. The Nation may grant the same right to foreigners, provided they agree before the Department of Foreign Affairs, to be considered Mexicans in respect to such property, and accordingly not to invoke the protection of their governments in respect to the same, under penalty in case of breach, of forfeiture to the Nation of property so acquired. Within a zone of 100 kilometres from the frontiers and of 50 kilometres from the seacoast, no foreigner shall under any conditions acquire direct ownership of lands and waters.63
Early decrees aiming to make effective this constitutional provision were not drastic, but left sufficient loopholes for American companies except in the matter of taxation. Therefore the State Departments note of protest of April 2, 1918, against the first regulatory decree, stressed the argument that excessive taxation is a form of confiscation. While the United States Government, the note said, is not disposed to request for its citizens exemption from the payment of their ordinary and just share of the burdens of taxation, so long as the tax is uniform and not discriminatory in its operation; and can fairly be considered a tax and not a confiscation or unfair imposition, and while the United States is not inclined to interpose in behalf of its citizens in case of expropriation of private property for sound reason of public welfare, and upon just compensation and by legal proceedings before tribunals, allowing fair and equal opportunity to be heard and giving due consideration to American rights, nevertheless the United States cannot acquiesce in any procedure ostensibly or nominally in the form of taxation or the exercise of eminent domain, but really resulting in confiscation of private rights and arbitrary deprivation of vested rights.64
The Carranza Government informed Washington that the question of taxation was one of internal affairs inherent in its right as a sovereign state. The action of the Mexican Government in this matter is not an innovation in international law, but the simple application of the principles of equality of nations practically forgotten by strong governments in their relations with weak countries, the Mexican note of August 17, 1918, stated. The State Department continued to hammer away on the issue of confiscation. By 1919 Mexican public opinion was pressing General Carranza to take a firm stand against interference from the north. In addressing Congress in September of that year he declared the American demands would deliberately destroy our liberty for legislation and nullify the rights we have to progress in accordance with our ideas. Expressing the hope that the northern Republic will respect the sovereignty and independence of Mexico, he affirmed that his Government absolutely cannot accept the principle that the liberty of Mexicans to govern according to their own necessities should be limited.
Some American oil interests which had helped to place General Carranza in power were now trying as vigorously to overthrow him. The notorious General Pelaez, a local power in the Tampico district, who had been used by the oil men previously, was again brought forward as the American hope. Within the period 1917-1919, American companies paid thousands of dollars for his protection. In answer to a question in the Senate hearings as to whether the Washington Government was cognizant of this financial connexion between the oil companies and General Pelaez, Mr. Doheny testified: Yes; not only aware of it, but, so far as they could without giving it in writing, they have approved of it.65
Article 27 had brought American and British oil men into a temporary entente for defence of their capitalist rights against the common menace of nationalization. President Carranzas pro-German tendency completed his damnation so far as Anglo-Americans were concerned. The Great War made it inexpedient for Great Britain to continue the Mexican oil dispute with the United States. Hence the Carranza Constitution and the war created a temporary Anglo-American truce. The British broke the Mexican oil truce immediately after the Armistice in France.
Lord Cowdray had tired of operating oil properties suffering constant depredations by outlaw bands, allegedly hired by American oil men. But when he tried to sell part of his holdings to American competitors, the London Government intervened and forced the sale to Dutch-Shell and other British interests.66
In the spring and summer of 1920 the State Department protested new petroleum decrees of President Carranza. American companies contended that the decrees threatened confiscation of properties legally acquired before enactment of the objectionable Constitution. In repeating this argument the Department put into its note the veiled threat that it could not remain insensible to the rights of its citizens.
When General Obregon came into power, Washington was determined as the price of diplomatic recognition to restrict application of the disputed Constitution to limits acceptable to the American oil men. President Obregon was of a different mind. He had been elected with agrarian and radical labour support.67 His constituents were demanding a firm policy against alleged American encroachments. He was also under financial pressure. To fill the empty national treasury by reclaiming a share of the Mexican wealth flowing out through foreign pipe-lines and tankers, Señor Obregon put down a 60 per cent export tax. This initial act, and the apparent determination of the new Government to make effective the paper Constitution, seemed to leave no opportunity for Washington to support the new Government.
Here was a chance for the British. They had visions of displacing the Americans as the dominant factor in Mexican oil. To this end they dealt secretly and separately with Señor Obregon. All the protests of Secretary Fall could not stop them. They were playing for big stakes. Mexican Government estimates place the total oil investments including lands at $618,000,000. United States capital in 1923, with more than 58 per cent of total investments, had about 70 per cent of total production.68 The British had only about 40 per cent of the investments and 27 per cent of production. There were other reasons for the British to deal separately with the Government. They were in a less vulnerable position under Article 27 than the Americans because of the early shrewdness of Lord Cowdray and other British companies in incorporating subsidiaries as Mexican companies.
President Obregon, instead of making separate terms with the British, played the foreign companies and governments against each other.
Paralleling these developments there was an oil awakening north of the Rio Grande. Talk in the United States of the menace of British oil invasion in the Americas and British exclusion policy abroad had resulted in the Federal Trade Commission investigation.
Washington in 1923 sought a settlement with Mexico. It wanted to check growing British power in the southern Republic, and so far as possible eliminate the Article 27 issue. It counted upon the Mexican financial stringency to put President Obregon in receptive mood. Such was the setting of the Warren-Payne negotiations in Mexico City which led to the agreement of September 1923.
The two Governments agreed to submit claims arising during the revolutionary and pre-revolutionary periods to special and general mixed claims commissions.69 United States diplomatic recognition was accorded on the basis of a Mexican pledge not to apply retroactively the alleged confiscatory provisions of Article 27. That pledge was given in the negotiations at Mexico City, August 2, 1923. According to the official minutes, the Mexican commissioners stated:
It is the duty of the Federal executive power, under the Constitution, to respect and enforce the decisions of the judicial power. In accordance with such a duty, the Executive has respected and enforced, and will continue to do so, the principles of the decisions of the Supreme Court of Justice in the Texal Oil Company case and the four other similar amparo cases, declaring that paragraph IV of Article 27 of the Constitution of 1917 is not retroactive in respect to all persons who have performed, prior to the promulgation of said Constitution, some positive act which would manifest the intention of the owner of the surface or of the persons entitled to exercise his rights to the oil under the surface to make use of or obtain the oil under the surface. ...
The above statement has constituted and will constitute in the future the policy of the Mexican Government, in respect to lands and the subsoil upon which or in relation to which any of the above-specified acts have been performed, or in relation to which any of the above specified intentions have been manifested; and the Mexican Government will grant to the owners, assignees or other persons entitled to the rights to the oil, drilling permits on such lands, subject only to police regulations, sanitary regulations and measures for public order and the right of the Mexican Government to levy general taxes. ...
The American Commissioners have stated in behalf of their Government that the Government of the United States now reserves, and reserves should diplomatic relations between the two countries be resumed, all the rights of the citizens of the United States in respect to the subsoil under the surface of lands in Mexico owned by citizens of the United States, or in which they have an interest in whatever form owned or held, under the laws and Constitution of Mexico in force prior to the promulgation of the new Constitution, May 1, 1917, and under the principles of international law and equity.70
As a result of the claims conventions, a foreign debt-funding agreement, and the Warren-Payne oil-land settlement, the Washington Government decided to support the Obregon regime as effectively as it had opposed previous administrations. Such an opportunity soon came. Adolfo de la Huerta, a former Obregon Minister, started a counter-revolution. Some American oil interests backed the rebellion. Its success, at least in part of the country, seemed assured provided Senor de la Huerta could get the American money and arms Mexican rebel chiefs were accustomed to receive. But Washington took effective measures to strangle the revolt. With the consent of New York bankers and some of the larger American oil interests, the State Department placed an embargo on shipments of arms and munitions to the rebels. As a double precaution against overthrow of Obregon, the Department sold to him military supplies of the United States army. In January 1924 the rebels made the mistake of defying the United States with an attempted blockade of Tampico, chief oil port. Washington dispatched the cruiser Richmond to Tampico and within a week the blockade was abandoned. The counter-revolutionists, lacking American monetary and military support, were soon defeated by the Obregon forces.
The Washington Administration had to explain to the American public and to the world its intervention in the civil war of a neighbouring state. There was a large body of American public opinion which, though sympathetic with President Obregon, opposed such partisan action which might be used by some future Administration as a precedent for less acceptable intervention.
Secretary of State Hughes defended his policy on moral grounds, incidentally mentioning the oil factors involved. In a campaign document published by the Republican National Committee in 1924, Mr. Hughes explained:
It [the de la Huerta revolt] was not a revolution instinct with the aspirations of an oppressed people; it was a matter of personal politics. It was an effort to seize the Presidency; it meant a subversion of all constitutional and orderly procedure. The contestants, seeking to overthrow the established Government, had taken possession of certain portions of the Mexican territory, and either were claiming tribute from peaceful and legitimate American commerce or were attempting to obstruct and destroy it. ... The refusal to aid the established Government would have thrown our moral influence on the side of those who were challenging the peace and order of Mexico, and we should have incurred a grave responsibility for the consequent disturbances.71
Decisive aid given the Obregon regime at a time of peril, and Mr. Hughess moral defence of such action, must be understood to appreciate the bitterness of Washingtons reaction later, when President Obregbn allegedly bit the hand that fed him. In payment for American services received, the Mexican President was expected to put Article 27 in cold storage and keep it there. For a while this seemed to be the intention in Mexico City.
There was a brief reassertion of Mexican rights in the case of American oil interests which had willingly or unwillingly subsidized the counter-revolution by paying taxes to the rebels. But the State Department quickly forced President Obregon to back down. Mr. Hughes also explained this and other diplomatic oil victories over Mexico in that same 1924 campaign document.
When the Mexican Government regained control of territory which had been temporarily occupied by rebels, Federal and state authorities attempted to force American citizens to repay taxes, duties and other charges previously paid to de facto authorities, he said. The [State] Department made representations to the Mexican Government, pointing out that, under the generally accepted rules and principles of international law, American citizens are entitled to pay duties and other taxes to persons exercising de facto authority and having made such payment to be free from further obligation in the matter. The outcome of the Departments action was gratifying, as the Mexican Government promptly issued definite instructions to the appropriate agencies in Mexico that repayment of such duties and taxes should not be required. Furthermore, the Department made continuous efforts to obtain adequate protection for American properties during the revolutionary disturbances and these efforts were highly successful, as the losses and damages suffered by the American interests concerned were kept down to a minimum.72
This Mexican-American accord was short-lived. Mr. Hughes left the State Department in March 1925, at the beginning of the second Coolidge Administration, to become counsel for the American Petroleum Institute, Standard Oil, and other corporations. General Obregon was succeeded by his friend, President Calles. Senor Calles was elected with the militant support of the CROM, or Mexican Federation of Labour. The CROM demanded that Article 27, after long delay since 1917, should now be made effective.
To handle this delicate situation, the United States had Ambassador Sheffield in its Mexico City Embassy and Mr. Frank B. Kellogg in the State Department. Soon there was trouble. Mr. Sheffield was summoned to Washington. President Coolidge through his Official Spokesman assured the country that all was well with Mexican relations. Mr. Sheffield also gave an interview to the press stating that Mexican conditions from the point of view of American interests were hopeful. But a few hours later, on June 12, 1925, Secretary Kellogg issued an astounding statement, which had been approved earlier in the week by Mr. Coolidge and the Ambassador.
The Kellogg statement precipitated two and a half years of strained relations, in which the United States repeatedly was on the paint of breaking diplomatic relations or of intervening directly against the Calles regime. It placed the Mexican Government an trial before the world. It gave encouragement to a counter-revolutionary movement being planned by certain American oil companies. It gave a battle cry to the radical supporters of President Calles who were demanding that he make effective the constitutional restrictions against foreign companies. The Kellogg statement is one of the few insults of its kind in diplomatic history which was not followed by diplomatic rupture or by war. It probably will be in the future, as in the past, an incentive to antiAmericanism in Mexico and in other Latin American countries where Yankee oil men operate.
Our relations with the Government are friendly but, nevertheless, conditions are not entirely satisfactory and we are looking to and expect the Mexican Government to restore properties illegally taken and to indemnify American citizens, Mr. Kellogg announced. A great deal of property of Americans has been taken under or in violation of the agrarian laws for which no compensation has been made, and other properties practically ruined and, in one instance, taken by the Mexican Government on account of unreasonable demands of labour. Mr. Sheffield will have the full support of this Government and we will insist that adequate protection under the recognized rules of international law be afforded American citizens. We believe it is the desire of the Mexican Government to carry out the [claims] conventions and to indemnify American citizens for property taken. So long as we are satisfied that this is the policy of the Mexican Government and this course of action is being carried out with a determination to meet its international obligations, that Government will have the support of the United States. ...
I have seen the statement published in the press that another revolutionary movement may be impending in Mexico. I very much hope this is not true. This Governments attitude toward Mexico and toward threatened revolutionary movements was clearly set forth in 1923 when there was such a movement threatening the constituted Government of that country, which had entered into solemn engagements with this Government and was making an effort to meet those obligations at home and abroad. The attitude taken by this Government at that time has since been maintained and it is now the policy of this Government to use its influence and its support in behalf of stability and orderly constitutional procedure, but it should be made clear that this Government will continue to support the Government in Mexico only so long as it protects American lives and American rights and complies with its international engagements and obligations. The Government of Mexico is now on trial before the world. We have the greatest interest in the stability, prosperity and independence of Mexico. We have been patient and realize, of course, that it takes time to bring about a stable Government but we cannot countenance violation of her obligations and failure to protect American citizens.73
President Calles of course replied in kind. A group in each country pressed for an immediate break in diplomatic relations. Belligerent Americans wanted to clean up Mexico. In Mexico City there was much talk of answering the Yankee insult. But a majority group of American oil interests and New York bankers decided anything might happen to American property if the United States withdrew its diplomatic representatives. So Mr. Sheffield returned to his post and the battle of oil notes began.
Ten notes and memoranda were exchanged from November 1925 to March 192674 concerning the petroleum law, which was passed on December 18 in the midst of the diplomatic barrage. These exchanges cover from many angles the basic dispute between the United States and Mexico, which will probably reappear at intervals to threaten peaceful relations until Mexican wells cease to flow. These notes also probably outline the anticipated diplomatic conflict between the United States and other Latin American oil countries such as Venezuela and Colombia. A summary of the notes, previously published by the author, follows:
Secretary Kelloggs communication of November 17, an aide mémoire of personal message, appealed to Mexico to remove the clouds which I perceive on the horizon of friendship between the two countries and suggested a new treaty of amity and commerce in line with the Warren-Payne Agreement of 1923. He pointed out the economic aspects and consequences of the proposed objectionable laws.
The Mexican Government replied on November 27 that there were no clouds on the horizon, that it was ready to negotiate a new treaty and that the pending law has respected Americans in their acquired rights.
It denied, however, that the Warren-Payne Agreement resulted in any formal agreement other than of the claims conventions.
On the same day the United States answered, expressing its genuine apprehension and repeating that the bill would operate retroactively and be plainly confiscatory in effect. Objection was also raised to the provision requiring foreigners to waive their nationality and to agree not to invoke the protection of their respective Governments so far as their property rights are concerned under penalty of forfeiture.
On December 7 the Mexican Government replied, objecting to representations regarding pending laws still in a formative state, which it claimed could not be fairly judged until put into effect. The note added that similar and more severe laws existed in the United States regulating property acquisition by foreigners and cited Illinois laws as an example. The Arizona law, also cited, provides that only American citizens may acquire property and limits alien holdings in corporations to 30 per cent.
In a memorandum of December 22 the United States cited decisions of the Illinois courts holding that the Illinois law of 1887 could not be applied retroactively or given confiscatory effect. It then referred to a section of the Arizona law expressly limiting the alien restrictions to future acquirements.
Following passage of the Mexican law, the United States on January 8 reaffirmed its objections.
Mexico on January 20 insisted that the executive decree to be issued would prove that the law was non-retroactive. Considerable space was given in defence of provisions regarding so-called positive acts, by which alien subsoil holders were required to prove that, by drilling or other acts, they had actually acquired oil titles.
Referring to the Warren-Payne Agreement, Mexico declared that its commissioners and President could not legally limit the constitutional powers of its Congress.
It cited as a similar case the gentlemens agreement between the American and Japanese Executives regarding immigration, which the American Congress later modified.
On January 28 the United States acknowledged the Mexican promise that the executive decrees would remove American objections to the law. This Government added, however, that the exchange of a present title for a concession having a limited duration does not confirm the title.
On February 12 Mexico used the American Prohibition law to prove that this Government itself had destroyed property rights. The Mexican note said in this connection:
When the Prohibition law was enacted in the United States it paralysed established businesses falling under its provisions (the amendment meant to stop the whole business, Hamilton vs. Kentucky Distilleries, 251 U.S. 146, 151, No. 1), and completely to paralyse a business would seem to be tantamount to destroying lawfully acquired rights therein, but nevertheless the American Government was not deterred by that consideration.
Secretary Kellogg replied on March 1 that the liquor business in the United States has not been a property right, but a licensed occupation which was subject to the fullest extent at all times to the police powers of the States, to licence by the United States, to the war powers of the Federal Government and now subject under the constitutional amendment to the police powers of the United States.
The final Mexican note of March 27, after answering in an apparently satisfactory manner Secretary Kelloggs request for assurances that Articles 1, 2 and 3 of the land law would not be applied retroactively, gave the following interpretation of the much disputed Articles 4 and 5:
It is true that an alien who, prior to the going into effect of the law, represented 50 per cent, or more of the total interest of any kind of association holding rural property for agricultural purposes, may retain the said interest without any need of a permit or without complying with Article 2, and that the right of his heirs to such interest in excess of 49 per cent is provided for in Article 6. As to its effect, however, upon foreign companies holding stock in Mexican companies under the aforesaid conditions, they must dispose of the said corporate interest in excess of 49 per cent within the term of ten years; which does not mean that the law is given retroactive effect in its application, since it has to do with an act in the future and not with an act in the past; but if any dispute should arise on that point, that is to say, as to whether or not the application of the law under the terms last mentioned is retroactive, it would be for the courts to determine it in accordance with the provision of Article 14 of the Constitution.
Article 14 of the Constitution provides that no law shall be given retroactive effect to the prejudice of any person whatever. The Mexican Supreme Court in five decisions has upheld Article 14 by ruling that Article 27 of the Constitution, which the disputed oil and land laws make effective, shall not be applied retroactively.
One argument advanced to justify acceptance of these Mexican assurances as satisfactory was that although that Government might in the future contend that titles lapse with the expiration of the confirmatory concessions, this would leave the American owner in the same but in no worse position than he had been in the period between the enactment of the 1917 Constitution and the passage of the land and petroleum laws in December 1925.
Mexico also in effect removed a second major American objection to provision of the law requiring alien owners or concessionaires to renounce protection of their own governments in respect to such specially acquired Mexican rights. Referring to the declarations of the Mexican commissioners who were party to the Warren-Payne Agreement of 1923, upon which this Government extended recognition to Mexico, Foreign Minister Saenz said:
I have therefore no objection to acknowledging the declaration of the Mexican commissioners who affirmed in the name of my Government that they would recognize the right of the Government of the United States to make any reservation of the rights of its citizens or in their name, which was made for the event of a resumption of diplomatic relations between the two countries. As admitted by Your Excellency, your note of January 28 referred to that reservation and said that during the negotiations of 1923 the American commissioners reserved in behalf of their Government all the rights of its citizens in respect of lands acquired by them in Mexico before May 1, 1917.'
In another place the Mexican note stated: that even though an individual should renounce applying for the diplomatic protection of his Government [as required by the law] the Government does not forfeit the right to extend it in case of a denial of justice.
The note gave a pledge that the laws regarded by the United States as confiscatory of American property would not be applied retroactively, but that renewable concessions would be given to American owners confirming their old ownership titles. Señor Saenz said: I take these purposes [i.e., executive decrees] of the President of the Republic for my basis in extending to Your Excellencys Government my assurances that in the regulations on the subject the rights to the subsoil held by American citizens who had performed any of the positive acts enumerated in my note of January 20, will be confirmed. The positive acts referred to, and certain police powers governing the execution of the laws, were among the points remaining for clarification, either by the Mexican Congress or the Mexican courts or by both.
As a result of assurances given in the final Mexican note, there was a lull in the controversy. American newspapers generally described the situation as promising. The State Department changed its tone. All official Washington utterances were of hopeful character.
About this time Roman Catholic agitation in the United States was aroused by the alleged church persecution policy of the Calles Government, which had closed religious schools and convents and restricted political activities of the clergy.75 The anti-Mexican campaign of certain archbishops and the Knights of Columbus in this country had an unintentional beneficial effect for Calles. It stimulated counter-pressure from certain Protestant and Ku Klux Klan groups. With this religious issue threatening to divide the American electorate, a situation was being created in which the State Department could not move against Calles in the oil controversy without being dubbed by the Klan as the tool of Rome. So when some American oil interests lost faith in the sincerity of Mexican pledges not to apply the law retroactively, the Washington Administration found it expedient to counsel patience. A compromise settlement was thus in sight. Suddenly, however, a new issue arose. That issue was Nicaragua.76
From that time Nicaragua was the crux of the dispute, though Washington, with an eye to anti-Yankee feeling in Latin America, used oil as a screen for the larger issue.
The United States at the time was in a difficult position in relation to Nicaragua. General Chamorro, United States adherent and former President, had been defeated in the presidential election. He had then overthrown by force the constitutional Government. Washington could not expediently recognize his regime because of the 1923 treaty among the Central American Republics, which it had sponsored and approved. That treaty pledged non-recognition of revolutionary governments, a principle generally beneficial to the stability and order desired by American commercial interests in Central America. The deposed President Solorzano having fled to California, Vice-President Sacasa with support of the Liberal Party claimed to be the head of the constitutional Government. Civil war followed. Washington offered its good offices. In October 1926 a peace conference was held at Corinto, with Admiral Latimer, American, acting as chairman. General Diaz, formerly an employee of American business interests, who had been lifted from a clerkship to the presidential chair during the previous American military intervention, was put forward in the Corinto Conference as a compromise candidate. The Liberals rejected him as a man distrusted by the Nicaraguan people for being an alleged tool of New York bankers. Americans charged that the revolutionists refused to accept Diaz and defied the United States because of alleged orders from Mexico City.
Dr. Sacasa, as a fugitive, had spent several months in Washington. He was friendly to American interests in Nicaragua. For a time the State Department considered recognizing him as President. When it was apparent Senor Diaz would obtain Washingtons favour, Dr. Sacasa started for the east coast of Nicaragua to establish a revolutionary capital. Mexico recognized him. Four ships carrying Mexican munitions to the rebels were traced by Washington. United States marines earlier had landed at Bluefields on the east coast to establish a neutral zone. The revolutionists charged this was an unfriendly act of intervention aimed against them. But the White House vigorously denied any intention to intervene. Meanwhile General Chamorro, convinced of the impossibility of carrying on against Washingtons disapproval, was preparing to leave the country. Machinery was oiled for making Seiior Diaz constitutional President. After a brief interim in which an unimportant senator sat in the unstable presidential chair, General Diaz on November 11, 1926, was elevated to that position by a specially-summoned Congress. Three days later he was recognized by the United States.
Washington had revived the Mexican oil dispute and used it as a weapon in the larger struggle. Despite United States marine neutral zones in the territory where rebels were victorious, Diaz was threatened with defeat. He requested formal American intervention. Battleships and more marines were sent. Senator Borah led a group in Congress supporting constitutional claims of the unrecognized Sacasa Government.77 The Administration stated the issue as Mexico versus the United States in Central America and the Caribbean. Stories were written and speeches made regarding the alleged Mexican bolshevist menace thrusting itself between the United States and the Panama Canal.78 President Coolidge, in a special message to Congress on January 10, 1927, explained his intervention policy on the ground that special interests of the United States in Nicaragua were at stake. He said:
As a matter of fact, I have the most conclusive evidence that arms and munitions in large quantities have been on several occasions since August 1926 shipped to the revolutionists in Nicaragua. Boats carrying these munitions have been fitted out in Mexican ports, and some of the munitions bear evidence of having belonged to the Mexican Government. It also appears that the ships were fitted out with the full knowledge of and, in some cases, with the encouragement of Mexican officials and were in one instance, at least, commanded by a Mexican naval reserve officer. ... The proprietary rights of the United States in the Nicaraguan canal route, with the necessary implications growing out of it affecting the Panama Canal, together with the obligations flowing from the investments of all classes of our citizens in Nicaragua, place us in a position of peculiar responsibility. ... We have a very definite and special interest in the maintenance of order and good government in Nicaragua at the present time, and that the stability, prosperity, and independence of all Central American countries can never be a matter of indifference to us. The United States cannot, therefore, fail to view with deep concern any serious threat to stability and constitutional government in Nicaragua tending toward anarchy and jeopardizing American interests, especially if such state of affairs is contributed to or brought about by outside influences or by any foreign Power. It has always been and remains the policy of the United States in such circumstances to take the steps that may be necessary for the preservation and protection of the lives, the property, and the interests of its citizens and of this Government itself.79
Three months later the President declared in a United Press speech in New York:
Toward the governments of countries which we have recognized this side of the Panama Canal we feel a moral responsibility that does not attach to other nations. We wish them to feel that our recognition is of real value to them and that they can count on such support as we can lawfully give when they are beset with difficulties. We have undertaken to discourage revolutions within that area and to encourage settlement of political differences by the peaceful method of elections. This policy is bound to meet with some discouragements, but it is our hope and belief that ultimately it will prevail.80
The Mexican Government denied it was supplying Nicaraguan rebels with money and munitions but affirmed its right to give such aid to a Government recognized by it, as Washington was helping Diaz.
The Nicaraguan dispute created an atmosphere in which settlement of the oil controversy was impossible. In the eyes of Washington the issue had become one of prestige in Latin America. The Administration was determined that the world should know that no foreign Power could challenge United States supremacy in the Caribbean. Washington was prepared at any cost to demonstrate its strength. If a Nicaraguan revolutionary party with the aid of Mexico could defy Washingtons will, anti-Yankee forces in the other Central American countries would be encouraged to do likewise. Thus strengthened, Mexico would be less ready to retreat from its radical oil legislation. The example of radical Mexican laws might spread southward to all Latin America. So at least Washington officials believed.
The Administration policy was successful from the State Departments point of view. The Nicaraguan revolutionists, on the verge of military victory at the gates of the Diaz capital, Managua, were forced by the United States to make terms. Col. Henry L. Stimson, former Secretary of War and later Governor-General of the Philippines, went to the war zone as President Coolidges special representative. He divided the revolutionists. Sacasa refused to accept his terms, but General bloncada and most of the Liberal forces surrendered their arms to the marines. Col. Stimsons pacification program provided for disarming of both sides, the United States to police the country and guarantee a free and fair election in 1928, President Diaz remaining in power in the interim. General Sandino sided with Sacasa and against Moncada in refusing to accept the Stimson terms. He fled to the hills with several hundred armed followers. Marine casualties, and American bombing of native villages held by Sandino, revived United States congressional opposition to the intervention policy. But despite this, and Sandinos continuance in the field,81 it appears in 1928 that the Nicaraguan revolution is broken for a little while. Charges of Mexican aid to the rebels are no longer being made.
When the Senate, at the height of the Nicaraguan controversy, unanimously passed a resolution favouring arbitration of issues between this country and Mexico, the State Department shelved the proposal. This action was in accord with the Presidents policy. In his United Press speech he said:
Under the present circumstances I can see grave difficulties in formulating a question which the two Governments would agree to submit to such a tribunal. The principle that property is not to be confiscated and the duty of our Government to protect it are so well established that it is doubtful if they should be permitted to be questioned. Very likely Mexico would feel that the right to make a constitution and pass laws is a privilege of her sovereignty which she could not permit to be brought into question.
Washingtons hostility to Calles during the Nicaraguan dispute encouraged certain American oil interests to support counter-revolution in Mexico. The State Department applied its arms embargo against the Mexican Government. Generals Gomez and Serrano prepared their military revolt. Both were presidential candidates, opposing former President Obregon, ally of President Calles. General Gomez promised American oil men to modify objectionable oil laws and regulations in line with State Department demands.82
Describing the connexion of some American officials and petroleum agents with Mexican counter-revolution during the Sheffield regime, Mr. Walter Lippmann, an editor of the New York World, wrote from Mexico City later:
It is a notorious fact, for example, that in the recent past the personal associations of the United States officials were not with the Government to which they were accredited, but with that class of Mexicans, among whom are to be found the rich, cultivated and sometimes charming people, who are financing and provoking armed rebellion. It is no less a notorious fact that many of the lawyers and representatives of the oil companies were not satisfied to argue their claims under international law, but openly and persistently used all the influence they possessed to undermine the stability of the Mexican Government.83
Whatever the degree of tangible and moral aid given the enemies of the Calles Government by Americans, it was not enough to save the rebellion of October 1927. After brief fighting, the few deserting Federal troops disbanded or surrendered. Gomez and Serrano were caught and executed.
Though the Calles-Obregon party had won on the military field, it was losing on the economic front. Restrictive legislation and consequent sabotage by American companies had reduced oil production and Mexican revenues. Production dropped from 193,000,000 barrels in 1921 to 90,000,000 in 1926 and to 64,000,000 in 1927.84 Oil revenues fell from $42,000,000 in 1922, when they constituted almost one-third of the Governments regular income, to less than $18,000,000 in 1926 and an estimated $14,000,000 in 1927. A fall in the price of silver, Mexicos second most valued export, increased the Governments financial stress. Mexico needed American capital.85 Why continue the struggle against the stronger Power of the north?
As this conciliatory mood grew in the Presidential Palace in Mexico City, important changes were occurring in Washington. A national political campaign was coming on. The Senate had passed its arbitration resolution. Protestant opinion was suspicious of anti-Mexican policy. The New York bankers wanted payment on the funded Mexican foreign debt under the Lamont Agreement, but saw little prospect of getting their money unless Mexico was helped along the road to economic recovery. The oil men themselves were restive. A minority had supported the Gomez-Serrano revolt, and failed to dislodge the Calles-Obregon combination. The majority group wanted a State Department policy that would produce results. A theoretic victory in a diplomatic argument would not produce oil. Their capital was tied up in the Mexican field. No profits were coming in. So far as the White House was concerned its Nicaraguan victory had saved United States prestige, and Mexican gun-running had ceased.
Out of these political and economic factors sprang a new policy. President Coolidge took charge. Ambassador Sheffield, symbol of the unfriendly policy, was allowed to resign. Mr. Dwight W. Morrow, friend of the President and Morgan partner, was chosen as the new Ambassador. Mr. Morrow was expected to go to Mexico City, cut diplomatic red tape, get directly to President Calles and obtain a settlement. Thus a mood of compromise in both capitals made possible the quick developments which followed.
Immediately the Mexican Supreme Court handed down a long-awaited decision favourable to American oil interests. The unwritten decision upheld an amparo or injunction obtained by the Pan-American subsidiary, Mexican Petroleum Company of California (Standard), in the lower courts.86 The amparo restrained the Mexican Government from enforcing its denial of drilling permits to companies not complying with the disputed petroleum law. Companies representing about 75 per cent of Mexican oil production had failed to comply. In upholding rights of the companies to drill, a verbal decision of Supreme Court justices declared unconstitutional certain provisions of the law.
Article 14 of the law required all foreign companies within one year to exchange titles for 50-year confirmatory concessions. Article 15 provided that companies should lose their rights for non-compliance with Article 14. The Supreme Court by a nine to two decision in the case held Articles 14 and 15 unconstitutional. This decision was hailed in Washington as a step in the right direction, but it was pointed out that the full purport of the decision could not be determined until the justices put it in written form. This had not been done up to May 1928. The effect of the ruling was also limited by Mexican procedure requiring five similar decisions to establish jurisprudence. Furthermore the Texas Company amparo case of several years previous was recalled, when even five Supreme Court decisions favourable to American companies had not restrained Mexico from continuing its restrictive legislation and decrees.87
American oil men were divided in their attitude toward the Courts decision. Their representatives in Mexico City inclined to a more favourable interpretation than that of New York executives and lawyers. Legalists in New York argued that the decision did not declare the petroleum law as such unconstitutional; that the positive acts provision of the law, under which companies might lose undeveloped lands, still stood; that companies must still prove titles. This point of view was expressed by the Wall Street Journal December 6, 1927, as follows:
The only thing the Court decided was that the cancellation of the permits in this one case was wrong because a 50-year limitation could not be put on a title in fee simple. Owners of leaseholds that have less than 50 years to run must surrender their titles to the Government and accept a concession. The Court utterly failed to pass upon or even notice the oil companys complaint that the law deprives a foreign corporation of the right of ownership. The decision leaves the American oil companies sitting on a limb with the confiscatory saw at work between them and the trunk of the tree.
In questioning the decisions value New York stressed the alleged desire of Luis N. Morones, labour leader and Mexican Minister of Industry, Commerce, and Labour, to ignore the ruling. Senor Morones through his Ministrys official bulletin, Revista Mensual de Petroleo, characterized these reports as malicious propaganda. He affirmed the Governments decision to interpret the law in the spirit of the decision, though that decision as yet lacked legal effect. The bulletin stated:
The Supreme Court, on giving its judgment, respects the fundamental principles of our legislation and fixes the policy, which ought to adjust the true interpretation of the petroleum law as in the case which has just been judged. Thus, in the case just presented, the Court has solved a conflict in the application of the petroleum law, and has signalized the interpretation which it should give in a concrete case submitted to its justice; it is now the corresponding duty of the Secretariat of Industry to give compliance to this decision, and therefore will give it its respectful obedience as on former occasions, where former similar decisions have been rendered by this same Court, although there have been efforts at some times, by offending propaganda against our Government, to make it appear just the opposite.88
Despite the suspicious attitude of some oil interests, Ambassador Morrow advised that the Court decision be taken as evidence of Mexicos intention to deal justly with American property rightsand as basis of hope for further action of the same character. Mr. Morrow meanwhile arranged for Col. Charles A. Lindbergh, Americas Ambassador of Good Will and hero of the New York-Paris non-stop flight, to fly from Washington to Mexico City. Col. Lindberghs visit had the desired effect of stimulating better feeling on the part of the Mexican masses toward the Colossus of the North. At the same time Mr. Will Rogers, Ambassador of Wit, was the guest of President Calles.
Under Morrow direction, the State Department refused to give comfort and aid to the Hearst newspapers, which were publishing an alleged documentary expose, purporting to prove the Mexican Government guilty of bribing American publicists, clergymen and senators. President Calless half-brother, Consul-General Elias of New York, testified by invitation at the Senate hearings. In repeating the Mexican Governments denunciation of the documents as forgeries, the Consul-General requested the Senate Committee to examine all accounts of the Mexican Government in American banks and all telegraph and cable records pertaining to transmission of Mexican Government messages and funds. Such examination by the Committee completely cleared Mexican officials of guilt.89 The Committees handwriting experts declared the documents to be forgeries, Mr. Hearsts experts then joined in characterizing the papers as fakes. This episode, together with the gesture of the Mexican Consul-General in opening private records to inspection, tended to remove popular American suspicion of Mexico, as activities of Messrs. Morrow, Rogers, and Lindbergh had stimulated more friendly feeling in the neighbouring country.
While the United States was waiting for the written decision of the Mexican Supreme Court in the Mexican Petroleum amparo case, and for similar court decisions to eliminate the objectionable Articles 14 and 15 of the petroleum law, President Calles decided upon a short cut to a settlement. Mexican Ambassador Tellez in Washington urged a conciliatory policy. Calles also conferred with his predecessor in office, General Obregon, who was expected to be elected as his successor, and who therefore would have to carry out any commitments made by the existing Administration. Senor Obregon had become over a period of years one of the richest men in Mexico. In some of his land investments he was associated with American business interests. He felt the need of a working agreement between United States capital, for which Mr. Morrow was a spokesman, and Mexico, which was fronted with a serious reconstruction problem.
In December 1927, therefore, President Calles proposed sweeping amendments to Articles 14 and 15, which were passed by Congress. Texts of the original and amended provisions follow:90
Article 14.The following rights shall be confirmed without cost by means of the issuance of confirmatory concessions:
I. Those derived from lands upon which petroleum exploitation works were commenced prior to May I, 1917.
II. Those derived from contracts entered into prior to May 1, 1917, by the owner of the surface or his representatives for petroleum exploitation purposes.
Confirmations of these rights shall be granted without limit of time when they must be made in favour of the owners of the surface; and according to the time stipulated in the contract in the case of rights from contracts entered into by owners of the surface or their representatives.
III. To the holders of pipe-lines and refiners who may be working at present by virtue of concession or authorization issued by the Department of Industry, Commerce, and Labour, and with reference to those same concessions or authorizations.
Article 15.A period of one year shall be given, counted from the day following the publication of these reforms to the same day, inclusive, of the following year, to solicit the confirmation of the rights to which the preceding Article refers and which have not been the object of confirmatory petitions during the period primarily set in this Article.
This term having expired, those rights shall be considered renounced, and rights the confirmation of which has not been solicited shall have no effect whatever against the Federal Government.
Transitory Article. Confirmations solicited within the year of 1926, and upon which the respective title has not been issued, shall be granted, if lawful, in accordance with these reforms. Confirmatory titles already issued shall likewise be rectified in accordance therewith.
Article 14.The following rights will be confirmed without any cost whatever and by means of concessions granted in conformity with this law:
I. Those arising from lands in which works of petroleum exploitation were begun prior to May 1, 1917.
II. Those arising from contracts made before May 1, 1917, by the superficiary or his successors in title for express purposes of exploitation of petroleum.
The confirmation of these rights may not be granted for more than 50 years computed in the case of Fraction I, from the time the exploitation works began, and in the case of Fraction II, from the date upon which the contracts were made.
III. The owners of pipelines and refiners who are at present operating by virtue of a concession or authorization issued by the Department of Industry, Commerce, and Labour, and as to what has reference to said concessions or authorizations.
Article 15. Confirmation of the rights to which Articles 12 and 14 of this law refer shall be applied for within the period of one year, computed from the date of the going into effect of this law; that date having passed, said rights shall be considered as renounced and the rights, confirmation of which has not been applied for, shall have no effect whatever against the Federal Government.
New York oil officials and attorneys, who were suspicious of the Supreme Court decision in the Mexican Petroleum amparo case, were equally critical of the Calles amendments. Their objections were reflected in a series of articles in the Wall Street Journal. That newspaper stated on December 30, 1927:
When these amendments are adopted and duly promulgated, the petroleum law will be, in nearly all respects, the same as it is now. It will still contain the following features: 1. Owners of lands acquired before May 1, 1927, must surrender their fee titles to the Government and accept a concession in return. 2. Before they can receive a concession in return for the titles they have surrendered owners in fee must establish an absolutely perfect title. 3. Owners of leases must surrender their leaseholds and receive a concession. 4. The doctrine of positive acts remains unchanged. 5. Foreign corporations cannot receive concessions. ... The proposed amendments are a gesture and nothing more. They give the oil companies nothing. The law of 1925, as interpreted by the Department of State, is confiscatory. If the law is amended as proposed those confiscatory provisions will stand intact. With or without the amendments, the law is meant to take away the property of American owners without compensation. The situation is no different today from what it was a year ago.
But such fears did not prevent shares of the Mexican Petroleum Company, following the announcement of President Calless amendments, from advancing in Wall Street 60 points within one day on a comparatively small turnover.
Additional court and administrative rulings soon indicated the speed with which Mexico was approaching the American idea of oil rights.
Señor Morones in a letter to Huasteca Petroleum on January 9, 1928, issued the following decision:
In view of the consideration which preceded the bill of amendment submitted by the Executive, this Department believes that the petition for confirmatory concession on the part of a national or foreign company does not imply the renunciation of rights acquired before May 1, of 1917, such confirmatory concession operating as the recognition of rights which will continue in farce subject only to police regulations.91
The American Embassy at Mexico City informed the State Department:
On January 7, 1928, a decision was handed down by the Third Supernumerary District judge of the Federal District granting amparos [injunctions] to the Huasteca, Mexican, Tuxpan and Tamiahua Petroleum companies. The decision of the District Court declares that Articles 2, 4, 14 and 15 of the Petroleum Law of December 26, 1925, are unconstitutional, the decision being based on the jurisprudence of the Federal Supreme Court in the group of five cases known generally as the Texas amparo decision by which it was established that Article 27 of the Mexican Constitution in the matter of petroleum is not retroactive in spirit or in letter. The District judge holds that inasmuch as this jurisprudence is binding on him as a Federal judge until such time as it may be modified by the Supreme Court it binds him in his decisions. The decision of the judge appears to refer not only to fee properties but also to leases in the case of the Huasteca Company [fee and leases] and Tuxpan and Tamiahua companies [leases exclusively].
President Calles on March 27, 1928, signed an executive decree, regulating and making effective the December amendments to the law. The decree stated, in part:
Article 147. In conformity with the provisions of Article 15, amended, of the law, private individuals or companies possessing rights referred to in Article 14 shall petition for confirmation before the respective agency, according to its jurisdiction, or directly, before the Department of Industry, Commerce, and Labour, within the period of one year, counted from January 11, 1928. ...
Article 150. The confirmation of rights, as mentioned in Article 14 of the law, shall be effected without cost and by virtue of a concession after proof of said rights, in the manner provided by Articles 151 and 152.
Article 151. The rights derived from works done prior to May 1, 1917, referred to in Section 1 of Article 14 of the law should be proved in the manner established by the laws on the subject or on the strength of documents authentic in the opinion of the Ministry of Industry, Commerce, and Labour which technically prove that the said work has been done. ...
Article 155. The confirmatory concessions shall be issued in accordance with the provisions of Article 14 of the law, without limitations of time when they be issued in favour of surface owners, and for the term stipulated in the contracts when they be issued in favour of lessees or concessionaires. ...
Article 159. For the purposes of Article 4 of the law, if the holder of the rights recognized by Articles 12 and 14 of the said law and 157 of these regulations is a foreign company or a Mexican company with foreign stockholders, in accordance with the provisions in Article 5 of the Organic Law and Section I of Article 27 of the Constitution, and Article 10 of its regulations, such rights may be held by the said company during the life of the contracts from which they flow, or, if the case arise, for the life of the company according to the articles of association. ...
The titles which may be issued in respect of those petitions shall contain a clause in which it is stated that their granting does not prejudice the confirmable rights which might exist in the lands they cover and which may have been invoked in due form in the remainder of the term established in Article 15, amended, of the law.92
As a result of the Calles decree, the State Department next day announced that the long dispute was practically over:
The petroleum regulations just promulgated by President Calles constitute executive action which completes the process beginning with the decision made by the judicial branch of the Mexican Government on November 17, 1927, and followed by the enactment of the new petroleum law by the legislative branch on December 26 last. Together these steps voluntarily taken by the Mexican Government would appear to bring to practical conclusion the discussions which began ten years ago with reference to the effect of the Mexican Constitution and laws upon foreign oil companies. The Department feels, as does Ambassador Morrow, that such questions, if any, as may hereafter arise can be settled through the due operation of the Mexican administrative departments and the Mexican courts.93
Though referred to so casually and lightly in this Department statement, the remaining questions in fact are considered very important by oil men and by the Department. The equally enthusiastic statement by Ambassador Morrow was somewhat franker than the Department on this point. He said:
There remains, of course, the determination of what rights the oil companies held on May 1, 1917, the date the Constitution became effective. While there may well be honest differences on this point, there is no reason why any such differences cannot be satisfactorily settled through due operations of the Mexican governmental departments and the Mexican courts.94
Press comment for the most part was as optimistic as the State Department and Morrow expressions. Indeed some drew from these official statements the logicalbut probably prematureconclusion that the United States Government thereby formally accepted the Mexican law and renounced future rights of protest against its provisions.
It may be assumed that henceforth the oil companies either accept the law, or, if they choose to fight it, fight with out diplomatic or moral support of the Government, wrote Mr. Walter Lippmann of the New York World, recently returned from Mexico City.95
This also was the opinion, expressed in similar form, of the Mexico City El Universal:
The declaration of Ambassador Morrow may be judged as a formal recognition of Mexicos law to the extent that future oil companies will have no alternative except to abide thereby or by not abiding thereby do so at their own risk, remaining without hope of diplomatic assistance.96
But the settlement, unfortunately, is not so complete as the official statements implied and the press believed.
The United States Government desires a clarification of the meaning of the word concession as used in Mexican legislation and decrees. Though the Calles Administration has removed the 50 to 80 years duration of concessions, it is still necessary for companies to exchange titles for these concessions. It is not sufficient, in the view of Washington, that such confirmatory concessions be valid for the duration of the original title, as provided in the amended law. The State Department, when it is expedient to do so, will reaffirm its contention that the only acceptable exchange, if any, for a fee simple title acquired by an American prior to the Constitution of 1917, is a confirmatory title, rather than a confirmatory concession. It will insist that this distinction involves more than a legalistic quibble over the words title and concession. The good faith of the present Mexican. Executive, in recognizing confirmatory concessions as giving in effect all rights of fee simple titles, will not be questioned. But future Mexican Governments may be less liberal in interpreting the legal rights of concession holders, the Department will point out.
A second dispute, which Ambassador Morrow and the Department are holding back for the moment, involves the allied question of the validity of original titles. Under American law a property title is deemed valid until disproved. The Mexican law reverses this procedure and places upon the foreign owner the burden of proving anew the validity of titles acquired before 1917 and not successfully questioned since that time. Mexicos motive in enacting legislation requiring such re-examination of all foreign oil titles arose from the casual manner in which Mr. Doheny and other Americans originally obtained certain lands. Some of the American titleshow many is unknownwere fraudulently and illegally acquired under then existing laws. Mexico is now determined to weed out those faulty titles. The State Department, of course, has based its entire case on defence of legally acquired titles. Even the most anti-Mexican Administration in Washington in the future is not apt to permit itself to be pushed by oil interests into the indefensible position of protecting illegal American titles in a foreign country.
This will not prevent the United States Government, however, from being thrown directly into the dispute over the validity of titles, which is certain to develop under the present law. Fear of the consequences of this provision of the law is not limited to companies desiring to retain corrupt titles. Holders of titles acquired in good faith are also apprehensive. Their concern is shared by the Washington Government for two reasons. First, titles in Mexico, as in most countries which have gone through cycles of dictatorship, revolution, and disorder, are notoriously shaky. In many cases Federal and local governmental records have been destroyed. In other cases records have been incomplete or contradictory from the beginning and therefore inevitably involved and difficult to decide. An equitable title decision can be derived, in Washingtons judgment, only by properly constituted courts.
This explains the United States second objection. Under the amended law the Mexican Executive through the Ministry of Industry, Commerce, and Labour, is empowered to pass upon validity of titles in the wholesale re-proving process required by the law. Standard and some other companies charge that the Ministry under Senor Morones is hostile to their interests. As a radical labour leader, surrounded by anti-capitalistic officials, he will not give them a fair deal, they say. Altogether apart from the personality of the present Minister the companies agree that any system placing such essentially juridical powers in the hands of political officials is conducive to favouritism and graft, and therefore equally undesirable from the standpoint of the Nation itself and of foreign producers.
Without aligning itself with these views, the State Department is expected to insist on the abstract principle that the Mexican courts by organization and experience are the proper and customary institution for determining title validity, if the Mexican Government insists upon such reexamination.
For the moment, however, Washington deems it expedient to sidetrack such arguments, thus permitting and encouraging Mexico under the new conciliatory mood to continue along its own line of compromise without apparent foreign pressure. During the Morrow-Calles negotiations the United States Government assured itself that the prospective President of Mexico, General Obregon, was an actual if unseen party to the Calles regulatory decree. Immediately upon its publication, Senor Obregon made his anticipated announcement: I have read carefully the new oil regulations. I am convinced that the arrangement will be of equal benefit to the peoples of Mexico and the United States, as it is satisfactory to both Governments.97 So the American diplomats and oil operators think they can afford to wait.
Meanwhile they have gained major advantages. The time limit on confirmatory concessions has been extended to the length of the original titles. The forfeiture penalty of the original law, for non-compliance with the concession-application provision, affected foreign companies controlling 90 per cent of the petroleum-producing lands and 70 per cent of the output, Secretary of State Kellogg informed the Senate.98 The companies were given another year in which to comply with the amended law. The controversy over the law both in its administrative and legal aspects is thus on new and more limited ground, and with a fresh period of grace.
The trend toward temporary rapprochement between the United States and Mexican Governments for the time being has thwarted British efforts to obtain a favoured position at the expense of American producers. During the Kellogg-Sheffield provocative tactics of 1926-27, the British tried to capitalize anti-Yankee sentiment in Mexico City. These efforts failed for several reasons. Dutch-Shell was beginning to concentrate in the new fields of Venezuela. Venezuela lacked the Mexican restrictive legislation, invited British exploitation, and geographically was in a better position for serving world markets than were the Tampico fields. If British oil capital was to expand in South America, it could not at the same time challenge successfully the entrenched American position in Mexico. This applied with greater force in the case of British Controlled Oilfields, which was close to bankruptcy because British Imperial policy rather than business judgment had determined its investments and activities. Anglo-Persian was preparing to capture a monopoly concession on Colombian national lands.99 Most British companies were coming to question whether the Mexican game was worth the price. Unwillingness of the Calles Government to treat with them on satisfactory terms confirmed their pessimistic attitude toward Mexicos petroleum future.
The British therefore tend to accept the opinion of those geologists who believe Mexican resources, which may be profitably exploited, are almost exhausted. The accuracy of this opinion, which is shared by some American producers, is difficult to determine. Many geologists think present Mexican fields will be practically exhausted, at a reasonable rate of production, within a relatively short time, say, a decade. But Mr. Doheny, whose judgment on Mexican oil in the past has been better than that of his competitors, points out that the interior of that country has hardly been scratched. Mexicans assert that the petroleum regions of the interior equal those which Mr. Doheny and Lord Cowdray found on the Tampico seaboard before Standard and Dutch-Shell bought the majority holdings of those two pioneers. Even if Mexican contentions are substantiated by future exploration, the problem of transporting oil to the coast will make such interior fields somewhat less attractive than the present wells.
While it is quite true that there has been a decrease in production since the peak total of 193,000,000 barrels was reached in 1921, unimpeachable and undeniable figures supplied by operators and verified by the Government inspectors prove that there is no actual foundation for the [pessimistic] opinion referred to, but that as a matter of fact the proven potential capacity of the existing oil wells was never so great as now, and that some other cause than a diminution of available supply or exhaustion of the fields is responsible, according to a statement of the Mexican News Bureau, Washington. To those who do not understand the matter it should be explained at the outset that all Mexican oil wells are self-producing, no pumping being resorted to as in other fields. No attention would be paid to any well necessitating such a process. ... There have been 1793 new wells sunk to date since January 1920, with the immense total annual capacity, as proven by test, of 2,516,700,000 barrels. ... A recent summary of the amount of oil exported from Mexico between 1901, when the first shipments were made, and the end of the first six months of the present year, showed a total of 1,434,810,581 barrels, or over 1,000,000,000 barrels less than the total proven potential capacity of the new wells completed since 19201 This serves to demonstrate that the oil fields of Mexico may be depended upon to increase in their productive capacity for an indefinite period, while with no further additions to the number of new wells there can be produced and exported many times as much as the largest annual amount recorded.100
Nevertheless, in negotiating with Britons and Americans under the new conciliation tactics, the Calles Government has been aware of the reduced importance of Mexico in the petroleum world. Revival of the Russian industry, initial drilling in Mosul, new gushers in the United States Seminole, west Texas, and California fields, and particularly the emergence of Venezuela and Colombia within the last year as direct competitors of the Tampico fields, lessen the bargaining power of the Mexican Government in dealing with foreign interests.101 The time is approaching, or has arrived, when foreign oil capital is more necessary to Mexico than Mexico is necessary to it.
Standard, Gulf and other American companies, of course, have to consider their present heavy investments there. Even though they shared in full the pessimistic point of view regarding future supplies and governmental restrictions, the American companies would be obliged to make the best of a bad matter and continue operations.
This interdependence of American companies and the Mexican Government explains in part the failure of the British to obtain a favoured position and the ability of Ambassador Morrow to make a temporary oil agreement with President Calles.
Mexicos dependence on American oil producers for taxes, industrial development, and employment of native labour is only part of her dependence on American capital as a whole. Mexicos economic crisis, caused by reduced oil revenues, fall of the silver market, and attempted counter-revolution, coincided with increased financial demands. The moratorium on foreign debt service expired on December 31, 1927, leaving the Government with $59,000,000 to pay in interest and amortization in 1928.102 To meet these obligations, 42 per cent of her estimated budget income would be required. This led President Calles in December to ask and receive from Congress extraordinary powers to deal with this problem. The situation was equally disconcerting to Mexico City and New York. The Mexican Government did not want to ruin its international credit, and the American bankers would lose if their debtor were forced toward bankruptcy. The bankers prepared to extend easier terms. In the interest of both parties a period of productive peace, based on Mexican-American co-operation, was essential. This thought was uppermost, perhaps, in the minds of the American banker-Ambassador and Senor Calles in their efforts to get the oil dispute temporarily out of the way. Moreover, new American capital is needed for reconstruction and industrialization of the country. Mexico can exist without American financial participation in the development of natural resources, but the process would be a very slow one.
Appreciation of the dependence of Mexico on American capital is buttressed by the dawning conviction of some Mexicans of the inevitable character of American economic expansion and imperialism. They think the American empire is too big for Mexico to fight successfully. This attitude was expressed by El Universal of Mexico City, in October 1927, as follows:
American imperialism is a fatal product of economic evolution. It is useless trying to persuade our northern neighbours not to be imperialistic; they cannot help being so, no matter how excellent their intentions. ... Let us study the natural laws [of economic imperialism], in the hope of finding some method by which, instead of blindly opposing them, we can mitigate their action and turn it to our advantage.
But this increasing financial dependence of Mexico upon the United States is accepted with regret. While both countries were rejoicing over the final settlement of the oil dispute as embodied in the Calles decree of March 27, 1928, the Mexico City Excelsior was lamenting that European capital, formerly so strong there, was now afraid to challenge the United States policy of financial and political domination. Excelsior concluded: We find ourselves, then, at the mercyMexico the same as other continent Republicsof American capitalists, reigned over by bankers.103
Recognition by Ambassador Morrow and President Calles of the advantages which can accrue both to American capital and to the Mexican Government from a co-operation policy was chiefly responsible for the conciliatory attitude in both capitals in the spring of 1928. But, in weighing the present situation and the probabilities of continued co-operation between the two Governments in handling the oil question, one factor is usually overlooked in the United States.
Mexico has paid almost the entire price for the present temporary rapprochement. She has retreated from her revolutionary principles of 1917. Granting that President Calles and General Obregon, who is expected to follow him, believe such a strategic retreatto use the phrase made famous by Leninis necessary for the final victory of the revolution, the Mexican masses may soon be of different mind. There is little, if any, similarity between the Russian revolution and Mexican revolutions which preceded it, except the agrarian problems common to each. But just because the semi-socialistic Mexican Government has less immediate and direct control over the masses than has the Communist Moscow dictatorship, the former may be unable to force the Mexican workers and peons to accept the retreat tactics which the Russian dictators imposed with such difficulty. As the Mexican Government swings more and more to the Right to team with American capital, increased protests are anticipated from labour and agrarian organizations. If this radical movement does not succeed in dominating Mexican politics, presumably it at least will check somewhat the Calles-Obregon conservative policy.104
Protests of radical groups in Mexico against too complete compromise with American capital are apt to become acute over the land law issue. The Washington Government opposes the land law as confiscatory. The land and petroleum laws are of necessity so closely allied, any failure to reach a final settlement on the former will react unfavourably on the present partial and unstable settlement of the oil dispute.
The crux of American-Mexican relations now, as in the past, is Washingtons unwillingness to make major compromises on this general property rights dispute of which oil is a part. The much-lauded Morrow policy represents an important change in method, but no change whatever in aim. It has involved sacrifice of none of the principles asserted so belligerently by Washington since the enactment of the revolutionary 1917 Constitution. The Morrow method has been successful temporarily because it permits Mexico to retreat without losing face. But if and when Mexicans stop retreating and begin again to defend nationalization principles of the 1917 Revolution, the conflict between Washington and Mexico City probably will be renewed. And in a more costly manner than in the past. For the handicap of belligerent Washington Administrations in the past has been the indifference of the American people toward troubles of the American oil men, and the positive opposition of a strong group in Congress to American intervention in the southern Republic. Mexican Governments shrewdly have counted upon this attitude of the American people to balance the Rockefeller-Doheny-Mellon pressure in Washington. Pro-Mexican sentiment in this country is to be explained largely, however, by the feeling that Mexico has been the underdog and Washington usually the aggressor. Now, thanks to Ambassador Morrow and the extraordinary publicity which has attended his efforts, most Americans apparently are convinced that the United States Government has made large concessions, going more than half way to meet Mexico in the interests of peace and amity.
In this popular American misconception of the Morrow era as representing a change in policy, instead of a mere change in method, exists a danger for the future. If the Calles-Obregon regime does not continue its retreat, the Washington Government is in a position to say to the American people: Mexico has betrayed our friendship. We have tried a conciliation policy, and it has been rejected. The only policy left for us, if we would protect legitimate American interests, is one of force. Believing that Washington and the oil men have made major sacrifices in the interests of peace, and not knowing that the compromise has been all by Mexico, the American people may be ready for the first time to support an intervention policy.
50. Anton Mohr, The Oil War, pp. 209-210. 1925.
51. Senate Foreign Relations Committee, Hearings 1913, Revolutions in Mexico, pp. 104, 462.
52. B.J. Hendrick, The Life and Letters of Walter H. Page, vol. I, p. 218. 1922.
53. Ibid., vol. 1, p. 206.
54. Ibid., vol. 1, p. 103.
55. David Lawrence, The True Story of Woodrow Wilson, p. 100. 1924.
56. Congressional Record, vol. 51, p. 4527.
57. 66th Congress, 2nd Session, Senate Documents vol. 9, pp. 255-256.
58. State Department, Foreign Relations of the United States, 1913, p. 820.
59. Ibid., p. 856.
60. State Department, Foreign Relations of the United States, 1914, p. 444.
61. Cf., Scott Nearing and Joseph Freeman, Dollar Diplomacy, pp. 100-111. 1925.
62. 66th Congress, 2nd Session, Senate Documents, vol. 9, p. 284.
63. Annals of the American Academy of Political Science, Supplement May 1917, The Mexican Constitution of 1917.
64. 66th Congress, 2nd Session, Senate Documents, vol. 10, p. 3120.
65. Ibid., vol. 9, p. 289.
66. Federal Trade Commission, supra, p. 94.
67. Cf., Carlton Beals, Mexico: An Interpretation. 1923.
68. Federal Trade Commission, supra, pp. xx-xxi. Cf., 69th Congress, 2nd Session, Senate Document No. 210, for list of American oil companies in Mexico.
69. State Department, Treaty Series, 1924, Nos. 676, 678.
70. State Department, Proceedings of the United States-Mexican Commission, Convened in Mexico City, May 14, 1923.
71. Charles E. Hughes, Foreign Relations, p. 56. Republican National Committee, 1924.
72. Ibid., p. 58.
73. State Department, press release, June 12, 1925.
74. Ibid., April 11, 1926, texts of 10 notes.
75. Cf., Arturo M. Elias (Consul-General), The Mexican People and the Church, 1927, for official Mexican statement. Also, President Calles, Mexico Before the World, pp. 103-141; a collection of public documents and addresses. 1927. Statements of United States Roman Catholics are collected in the Congressional Record, vol. 68, pp. 1693 ff.
76. Cf., Henry L. Stimson, American Policy in Nicaragua; approved by President Coolidge as an official statement. 1927. For anti-United States narrative, Rafael de Nogales, The Looting of Nicaragua, 1928. General references: 69th Congress, 2nd Session, Senate Hearings, Foreign Loans. 68th Congress, 2nd Session, Senate Hearings, Foreign Loans. Isaac Joslin Cox, Nicaragua and the United States, 1909-1927. 1927.
77. New York Times, Jan. 14, 1927.
78. Cf., New York World, Jan. 15, 1927, for critical comment. Also, Baltimore Sun, Jan. 12, 1927.
79. 69th Congress, 2nd Session, House Document No. 633, pp. 6-9.
80. New York Times, April 26, 1927.
81. Cf., New York Nation, Feb. 22, 1928, and following issues, for Sandino articles and interviews by Carlton Beals.
82. Ibid., Oct. 19, 1927.
83. New York World, April 4, 1928.
84. American Petroleum Institute, Petroleum Facts and Figures, pp, 19-23. 1928.
85. Commerce Department, Commerce Year Book, 1926, vol. 2, pp. 370-379.
86. New York Wall Street Journal, Dec. 12, 13, 16, 17, 1927.
87. Cf., Association of Producers of Petroleum in Mexico, AmparoThe Texas Co. of Mexico S.A., August 1921.
88. New York Herald Tribune, Dec. 11, 1927.
89. Cf., 70th Congress, 1st Session, Senate Hearings, Investigation of Alleged Payments by the Mexican Government to United States Senators. Ibid., Senate Report No. 52.
90. Translation by Mexican Embassy, Washington, from Diario Oficial, Jan. 10, 1928.
91. State Department, press release, Jan. 13, 1928.
92. Washington United States Daily, April 7, 1928.
93. Ibid., March 28, 1928.
94. New York Times, March 28, 1928.
95. New York World, March 28, 1928.
96. New York Times, March 30, 1928.
97. Ibid., March 30, 1928.
98. 69th Congress, 2nd Session, Senate Document No. 210, p. 4.
99. Cf., Chap. VII.
100. Press release, October 22, 1927.
101. Cf., Appendix A.
102. New York Wall Street Journal, Dec. 23, 29, 1927.
103. New York Herald Tribune, April 1, 1928.
104. Cf., Beals, supra, on Labor and Agrarian Movements. Calles, supra, pp. 8-34, 55-61, 68-69, 183. William English Walling, The Mexican Question, pp, 81-144. 1927.