Papers Relating to the Foreign Relations of the United States, Transmitted to Congress with the Annual Message of the President, December 2, 1872, Part I
No. 290.
Mr. Nelson to Mr. Fish.
Mexico, February 14, 1872. (Received March 1.)
Sir: Referring to my dispatches Nos. 504 and 507, I herewith inclose a copy and translation (A, B, and C) of another article by Mr. Emilio Valasco, from the Siglo XIX, upon “Mexican relations with the United States,” which is devoted to the history of the “Free Zone.” Though the views expressed are at variance with those held both by the American and the Mexican governments upon the subject, the position and antecedents of the writer render his statements worthy of consideration.
I am, &c.,
The free zone.
By Don Emilio Velasco.
[From the Siglo XIX, of January 15, 1872.]
In our previous article we observed that the abolition of the zone would not remedy the evils of which the American Government complains and would only cause a double development of smuggling, first from the American frontier to our own, and afterward vice versa. In examining this point, we shall now present some reminiscence of the condition of the Mexican frontier before the establishment of the zone. There existed on [Page 389] the American bank, in front of each of our towns, a custom-house, on the drawback principle, which gave rise to the fact that ail our importations were made from the United States.
It is unquestionable that this institution favored smuggling into Mexico, as the merchant could keep his goods in deposit without paying duties, until a favorable opportunity to introduce them clandestinely by some one of the numerous unguarded passes of the river. At that time, as appears from statistics recently published, there were constantly in deposit at Brownsville more than three millions of dollars worth of goods, all destined for importation into Mexico.
In 1856 the present tariff was established, which considerably diminished the import duties, and at the same time introduced the system of discounting the payment of such dues on account of advances of money made to military chiefs. The result was, that although the duties were paid at par, it was a merely nominal payment, as it was made in orders upon the custom-house, which the merchant had bought from the government or from the military chiefs, at a discount amounting generally to one-half, and sometimes even less. It is consequently very difficult to ascertain the actual results of the lowering of duties by the tariff of 1856, since that tariff was constantly nullified by discounting the duties; but we will nevertheless endeavor to state its principal effects.
Under the high-tariff system, there were organized bands of smugglers, whose plan was to take advantage of the passage of goods from the United States into Mexico in order to cross their own goods by some place on the river which appeared least exposed to the vigilance of the customs employes, and they did not hesitate to employ force when surprised in their operations. These perilous adventures produced heavy gains; and even when the smugglers secured the passage of only a part of their goods, it was generally enough to shield them from loss.
Those who now complain of smuggling have no idea of the extent to which it was formerly carried on, but they may easily satisfy themselves by examining the fiscal document of that epoch.
The tariff of 1856 momentarily diminished smuggling to such an extent that it was thought possible to do away with the counter-guard. This was an error, for it created new facilities for smuggling goods into the center of the Mexican republic, and soon revived such operations upon a still vaster scale in 1856 and 1857: and these evils, immensely greater than those the Free Zone has caused to the United States, were caused in great measure by the American system of dispatching goods, and the drawbacks.
It should be observed that neither the lowering of the tariff nor the payment of duties in custom-house orders sufficed to prevent the inhabitants of the Mexican frontier from providing for their wants by smuggling from the cheap American market.
The inherent characteristics of the situation of the Mexican frontier, as toward the American, before the Free Zone, were then these two:
- 1st.
- Smuggling upon a vast scale was singularly facilitated by the establishment of drawbacks on the American frontier, and by the connivance of American employes.
- 2d.
- A vast consumption on our frontier of goods smuggled from Texas, and hence the ruin of Mexican commerce, the depopulation and demoralization of our settlements, and their complete dependence upon Texas. The law of the Free Zone, promulgated in 1858, took into account only the second of these features. Its principal object was to check the decadence of the Mexican settlements along the Bio Bravo, by assuring to their inhabitants the means of subsistence. This law is considered by some as an act of hostility against the United States, but those who examined the records of the epoch immediately preceding and following the Free Zone, will be convinced that this complaint rests on no solid basis, and that the American Government has been deceived upon this subject.
There existed a fact upon the frontier which our laws were powerless to prevent this fact was, that all the goods consumed were smuggled from Texas. Free consumption was a fact attended with immense disorders, above the combinations of legislators, and above all fiscal precautions. At the present time the enemies of the zone denounce it as a privilege. If this be true, it is a privilege not created by the law, but by the nature of things, and existing previously to the law. The law accepted what it could not prevent: it merely endeavored to establish convenient regulations and to diminish the accompanying disorders.
It now remains to examine the changes produced by the Free Zone in the commercial relations of the two frontiers, and to prove that the abolition of the zone would cause a double movement of contraband traffic, so as to understand fully the interests which our government is bound to protect and the necessities it is bound to consider. We desire that this question be discussed in good faith with the American Government, in order that a final solution may be found compatible with the interests of both. We have traced the antecedents of our commerce on the frontier, not in order to reproach anyone, but in order not to lose sight of the fundamental elements of the question. We are fully persuaded of the friendship which the Government of the United States now [Page 390] bears toward us, and this friendship is one of the principal reasons which induces us to desire a solution of all pending questions. The settlement of a difficult question between friends is easier than that of the slightest misunderstanding between distant acquaintances.
The law of the Free Zone was promulgated in 1858. Its basis was the importation of goods free of duties into a certain district within which they might freely circulate, on condition of paying duties when sent into the interior of the republic. From this fact arose two consequences: The first was to render merchandise as cheap in Mexico as in the United States, and thus to remedy our commercial dependence upon that country. The second was to relieve us from the paralyzing effect of the American drawback system, and to facilitate the vigilance of the passes of the river.
The precise effects of the Free Zone cannot be studied in the period from 1858 to 1866, because during all this time one or the other frontier suffered from very exceptional fiscal or political influences. From 1858 to 1861 constant reductions in the duties were made by military chieftains, to such a degree that orders on custom-houses sunk to 20 or 25 per cent., for which reason the merchant had no interest in smuggling.
From 1861 to 1865 the American civil war and the blockade of the southern ports produced an abnormal situation. Most of the commerce of Texas was made through the port of Matamoras. From 1865 to 1866 the Imperialist authorities of Matamoras endeavored, from political motives, to obstruct all commercial relations between the two frontiers, and there was, besides, so large a number of republican troops along the Rio Bravo as to render smuggling difficult.
As relates to the United States during this period, the only observation we have to make is, that while the tariff was low there was no smuggling from Mexico into Texas, and that such smuggling commenced when the high tariff and the internal-revenue act commenced to be put in force. Before the civil war internal trade was perfectly free in the United States; almost all the merchandise consumed on both frontiers was American, and excessively cheap on the Texan side, from which the smuggling was made into Mexico.
During the war the internal revenue was established, and as this duty was not collected on goods in transit for Mexico, it resulted, when combined with the action of the Free Zone, as rendering even goods of American production cheaper in Mexico than in the United States. It often happened that American goods were smuggled back for the consumption of the American frontier. Notwithstanding this fact, the consumption of American goods has notably decreased, and that of European goods has consequently increased, in spite of their heavy freight.
The greatest part of the goods sent to Matamoras come first from Europe to New Orleans, as a port of transit, pass thence to Brownsville, where they enjoy the freedom of deposit, and finally to Matamoras or some other Mexican town along the Rio Bravo. Once in Mexican territory, if there should be any market for these goods in Texas, they can always be smuggled back. The ports of deposit have also a great influence upon our frontier trade.
The American territory presents great advantages for the transit of our commerce, the greater part of which is smuggled into the interior, not by the importer, but by other merchants who buy from him.
At the present time, as a general rule, no merchant attempts to bring across an invoice without having procured the connivance of some customs employés. This question of smuggling has become, in great measure, a question of the fidelity of employés, and is consequently very difficult of solution.
The distance of those regions prevents any effectual vigilance. Smuggling is generally perceived only by its effects. The counter-guards are intended to correct this evil, and will undoubtedly do so when their operations shall be supported by an adequate armed force.
The above antecedents sufficiently demonstrate the condition to which both frontiers would be reduced by the abolition of the Free Zone. American commerce with our frontier would cease from the moment of imposing duties upon it. Ports of deposit in Mexico would not remedy the evil, because the American custom-houses would be preferred as places of deposit, on account of their great security, and there would be quickly accumulated a vast store of goods, which would be smuggled into our territory. From the commercial point of view, the American settlements would undoubtedly thrive at the expense of our own, which would be completely ruined; but the American Government would derive no pecuniary advantage therefrom, nor would smuggling be at all diminished.
When once the goods had been smuggled into Mexican territory, they would necessarily be cheaper than in Texas, and a second operation of the same kind would Restore the equilibrium of prices. There is, besides, another very important aspect of this question, which ought not to be forgotten. The smuggling now carried on from Mexico into Texas is not very extensive; it is rather a matter of peddlers-wares, which necessarily escape the vigilance of the authorities. Its importance, then, is not in its amount, but in its frequency. Large invoices are rarely sent across, and only when the connivance of custom employes has been secured. Such connivance would enable a [Page 391] merchant to smuggle a consignment of goods from the American bonded warehouse to Mexican soil, and to re-pass them by another route into Texas. Bat when this connivance is assured, this doable operation becomes unnecessary.
It is easier to pretend to make such an, exportation, so as to extract the goods from the warehouses without having to pay duties, and really to dispose of such goods on American soil. This is what is generally done, and when the effects of such operations upon the American markets is perceived, those effects are wrongly attributed to smuggling from Mexico. Operations of this kind have taken place, not only on the frontier, but even at New Orleans. We remember a case which came before the American courts, in which a vessel was dispatched from New Orleans to Matamoras with a heavy cargo of whisky.
The vessel arrived at Matamoras in ballast; the whisky had merely been carried from the bonded warehouse to the merchant’s stores. With or without the Free Zone, this class of frauds will be committed as long as the present fiscal system shall subsist in the United States. The careful examination of this question gives this result: that Texan interests wish to thrive by the ruin of our settlements, and that they have sought to find in the insignificant smuggling now carried on a pretext for attacking the Free Zone.