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“Not So Private Negotiations”: Mexico Expropriates the Oil Companies

In 1933, newly elected President Franklin Roosevelt announced a “Good Neighbor Policy” that promised a more friendly and less interventionist policy toward Latin America. The policy was prompted as much by Latin American resistance to U.S. intervention as by the U.S. government’s benevolence. In 1937, the policy was put to the test when Bolivia charged that Standard Oil of New Jersey had defrauded the Bolivian government; Bolivia canceled the company’s oil drilling rights and confiscated its facilities. True to its new policy, the United States avoided military intervention and instead pressured Bolivia by withholding loans and technical assistance. The following year, a war of words erupted between the government of Mexico and the Standard Oil Company of New Jersey over who owned the rights to exploit a portion of Mexico’s oil reserves. After U.S. oil companies refused to accept the arbitration terms of the Mexican labor board, Mexican President Lázaro Cárdenas expropriated oil company properties worth an estimated half billion dollars. In The True Facts about the Expropriation of the Oil Companies' Properties in Mexico, the Mexican government clarified its position to the American public and justified expropriation of Standard Oil’s property.

The companies stated, in the year 1938, that they were disposed to enter into negotiations with the Mexican Government for the purpose of reaching a friendly understanding concerning the problems which had been created by reason of the expropriation. To that end, they designated as their representative, Mr. Donald R. Richberg, who, after having had several discussions with Dr. Francisco Castillo Nájera, Ambassador of Mexico in Washington, came to Mexico where he held a series of conferences with President [Lázaro] Cárdenas.

Inasmuch as the Standard Oil Company, in the two pamphlets which it has published, has attempted to make it appear that the failure of the negotiations was due to the fact that the Mexican Government had repudiated one of the principles which served as the basis of the negotiations to effect the return of the properties to the companies, the Mexican Government finds itself impelled to publish the pertinent parts of the aide-memoire which Ambassador Castillo Nájera prepared immediately after each of said conferences took place, he having been present on all occasions. Also, the Government finds it necessary to make public the correspondence exchanged between the Ambassador and Mr. Richberg. The negotiations and the correspondence which was exchanged between the parties as a result thereof, were of a confidential nature, but inasmuch as Mr. Richberg, and the Company he represents, have published, in a fragmentary and malicious manner, the discussions had at said conferences, the Mexican Government is forced to make known the truth of what actually occurred.

It will be shown beyond a shadow of a doubt that although it is possible that Mr. Richberg might have had as his objective securing the return of the expropriated properties, President Cárdenas never entertained any such idea in any of the conferences, and he so informed the attorney for the Standard Oil on numerous occasions.

The conferences opened on the 8th day of March 1939, in the National Palace. After the formal and customary exchange of greetings and in exchange of ideas of a general character, discussion of the subject matter was started under the following terms:

Mr. Richberg.—He is not unaware of what has been the nature of the maneuvers by the companies; he knows what they have done, not only in Mexico, but also in the United States. Disapproves the unbecoming conduct of these fellow citizens of his, but repeats, it is better to throw a veil over the past, and place the foundation of a new era; to institute a method of cooperation which will insure rational benefits, not only to those persons interested in the present case, but also to new capital that investors were anxious to invest in Mexico. Countries, which for the moment are not able to create national capital, need it from abroad; and foreign capital, in venturing outside its own territory, requires guarantees which will insure profits, which, he repeats, will not be the enormous fortunes of the past.

The colonies which constitute the nucleus of what is now the United States, when they separated themselves from England, formed an economically poor country and was needful of European capital, and they had to accept it, even at great sacrifices. It was necessary for the lapse of more than a century in order to attain the economic situation it enjoys today. Mexico can, within the present world economic conditions, promote the investment of foreign capital, prevent exploitation of workers, and only permit investors to enjoy moderate profits.

Mr. President.—He is in accord with those points of view and states that Mexico would gladly welcome investors who came to cooperate, in obedience to our laws and inspired with human kindness; a sentiment which was found lacking in the oil companies. There are other enterprises owned by foreign capital in Mexico, which have not had any difficulties with the Government, with the exception of the necessary movements to preserve the equilibrium between capital and labor. These industries flourished under the protection of our laws and feel neither insecurity nor anxiety.

Mr. Richberg.—Inquired whether President Cárdenas could, at this time, indicate the basis of a settlement.

Mr. President.—Explains that the Government was disposed to listen and to discuss any proposition that might be made. Asks Mr. Richberg what are the real reasons for which the companies desire to manage or to have a part in the management of the industry.

Mr. Richberg.—Explains that they do not desire to manage the industry in its entirety but only to intervene in the management of that portion appertaining to capital. This question is based on what might be called the atmosphere, conditions which in the United States are basic and have great force in public opinion, a matter that probably does not occur in Mexico. As regards to the stockholders, these were the parties affected, and the great majority of such stockholders, as well as public opinion, would like to be sure that the management was efficient, and that their interest would be satisfied in an effective manner within the least possible time.

Mr. President.—He would like Mr. Richberg to speak with the utmost frankness, it being understood that the President will explain his points of view with the same degree of sincerity; if the companies desired an immediate payment, the Government was disposed to make it, either by raising the necessary amounts within the country or in some other manner, for it was well to bear in mind that American interests represented only twenty per cent of the total, for which reason the compensation would reach an amount that, he repeats, the Government could pay within a brief period with some sacrifice.

Mr. Richberg.—States that he represents the group of companies that may be called the Standard; that is the Standard Oil Company of New Jersey, the Standard Oil Company of California and their subsidiaries, which he considers unnecessary to mention. He also represents the Sinclair group and is able to say that in these negotiations the English companies are likewise represented. Therefore, the settlement that might be made would include the whole of the foreign interests expropriated. The speaker would not consider it at all satisfactory that the present controversy be settled by means of an immediate payment that would have no meaning for international commercial relations, nor for cooperation in the future. He finds it preferable, as he stated, to break with the past, to avoid the proceedings of an appraisal, and to sign a contract which he once more insists, that while implying a direct settlement of the oil problem, might mean an influx of foreign capital for investment in different Mexican industries.

At the second conference held with the President of the Republic in the National Palace, March 9, 1939, the President invited Mr. Richberg to submit concrete propositions under the following terms:

Mr. President.—Is ready to hear propositions that Mr. Richberg might make on behalf of the companies, and to discuss each one of them.

Mr. Richberg.—To tell the truth, he had no proposals to submit and much less a concrete plan; he is doing his best to give definite form to the propositions emanating from President Cárdenas, which he hopes to listen to, either in concrete or in general terms, in which would be included the principal aims to which the Mexican Government aspires as most highly desirable for the solution of the problem in its many and varied aspects.

Mr. President.—Inasmuch as Mr. Richberg has no plans to submit, the President would draft a plan for an understanding, without entering into details, but stating the main ideas of the Government.

I. Immediate compensation after appraisal.

II. Long term contracts for cooperation between the companies and the Government in the exploitation of the petroleum industry.

III. Arrangements for new investments to promote the industry exploration work, establishment of refineries, etc.

In the second paragraph, regarding the long term contracts, the relations between the government and the companies, as well as the labor problems, would have to be considered in such way that the management or administration will be left in the hands of the Mexican Government, which could accept the technical collaboration of the experts recommended by the companies.

Mr. Richberg.—Expresses the opinion that to fix the appraisal would take a very long time and that all the difficulties would arise on that point. He finds it preferable to avoid that obstacle following a different path. Probably there are not sufficient data available to fix the appraisal; it was certain that the estimated prices of the Government and of the companies are very different. He insists that some other means be found for arriving at an understanding, preferring that the contract of cooperation be established.

Mr. President.—In his opinion, data is available for fixing the amount of the compensation; the Government, at least, already possesses the necessary data and; quite likely, the companies also have it. The most practical way of reaching a settlement would be by making payment, and the Government can easily make it.

Mr. Richberg.—Although an immediate payment would facilitate the solution of the controversy, and liquidate the past, such a settlement cannot be considered as satisfactory because it does not contain the basis for future collaboration, not only as regards the petroleum industry, but also the investment of new American capital which, as the speaker said yesterday, was anxious to come and operate in Mexico. He insists on the advisability that the agreement that may be reached in this particular case, may be the starting point for future transactions which would be abundantly beneficial for both countries.

At the third conference, held March 10th, Mr. Richberg spoke as follows:

Mr. Richberg.—Mr. Richberg, regardless of whether his position was proper or not, wished to place on record that the part played by him as required by his ideas and by his desire for success in this case, was that of an intermediary and not that of an opponent to the aspirations of the Government. In that light, acting as a mediator, Mr. Richberg will take the liberty of frankly stating what are his personal ideas without these being considered as the aims or pretensions of the companies. He intends, once the basic principles have been established, to submit to his principals the plan for settlement as emanating from the Mexican Government and as a result of the conversations that have taken place.

Mr. President.—From the first interview, he understood and appreciates Mr. Richberg’s mission, and since then has not ceased to look upon him as a friendly mediator. He was sure that in future conferences a general plan would be drawn in which the necessary technical details would be inserted.

Source: The True Facts About the Expropriation of the Oil Companies' Properties in Mexico (Mexico City: Government of Mexico, 1940), 103–110.

See Also:The Reply to Mexico: Standard Oil Puts Forth Its Position