Papers Relating to the Foreign Relations of the United States, 1918

File No. 812.512/2071

The Ambassador in Mexico ( Fletcher) to the Secretary of State

No. 1283

Mexico, August 7, 1918.

Sir: In continuation of my despatch No. 1273 of July 31 last and confirming my various telegrams of the past week, I have the honor to enclose herewith full text and translation of the new petroleum decree dated the 31st of July and published unofficially on the 5th instant.

For the convenience of the Department in making a comparison of the petroleum decrees, I enclose a translation of the same in parallel columns.¹

This decree was published in the Diario Oficial on the 6th instant and the Spanish text herewith enclosed is official. Inasmuch as the new decree purports in the enacting clause to reform the decrees of February 19 and May 18, and by the second transitory article the said decrees, as well as all rulings which may conflict with the provisions of the present law, are annulled, I beg to inquire whether the Department desires me to renew formally the protest contained in my note of April 2.

Substantially, the decree of February 19 last has not been changed and the underlying principle against which we have formally protested has not been departed from in the slightest, but unless we renew our formal protest it might possibly be contended at some future time by the Mexican Government that the new decree annulled the decree of February 19, and that the present decree was never protested against. In case the Department deems it well to renew the protest—and in my opinion this should be done unless all the American interests involved decide to abandon their rights and titles—I have the honor to request the Department’s telegraphic instructions as to the form in which it wishes the protest to be made.

The British Chargé d’Affaires informs me that he is also bringing this question to the attention of his Government by telegraph.

In order to complete the Department’s records, I enclose herewith copy of the note of Mr. Cummins, then in charge of British interests in Mexico, dated April 30, formally protesting against the petroleum decree of February 19.

Neither the British note nor my note of April 2 has yet been acknowledged by the Mexican Foreign Office.

The Government newspapers to-day state that the Mexican Government made certain modifications as a result of the conferences with Messrs. Garfield and Rhoades, and that some of these modifications are embodied in the new decree, and that the others mentioned in the memorandum forwarded in my despatch No. 1273 of July 31 will be published this week in the form of a decree, and that said modifications are independent of the result of the Texas conference of oil men, as they are the only ones the Executive has determined to grant.

In my opinion, the slight amendments and modifications made by the decree enclosed and promised in the memorandum forwarded a week ago, have not materially improved the situation of our nationals, and as far as the principle involved is concerned, no change whatever has been made.

Awaiting your instructions as to the renewal of the protest,

I have [etc.]

Henry P. Fletcher

[Enclosure 1—Translation]

The petroleum decree of July 31, 1918, amending the decrees of February 19 and May 18, relative to the tax on oil lands and oil contracts¹

I, Venustiano Carranza, Constitutional President of the United Mexican States, to the inhabitants thereof make known:

That in use of the extraordinary powers vested in me by the Congress of the Union, with reference to Treasury matters, I have seen fit to reform the decrees of February 19 and May 18 this year as follows:

• Art. 1. A tax is established on oil lands and on oil contracts executed prior to May 1, 1917, having for their object the leasing of lands for the exploitation of carbides of hydrogen or permission to do so under an onerous title. Likewise all contracts originating from those hereinbefore mentioned shall be taxed.
• Art. 2. The annual rentals stipulated in the contracts cited in Article 1 shall be taxed in the following proportions:

  A. Those of five pesos per annum per hectare or less, with 10 per cent of their value;

  B. Those of more than five pesos and up to ten pesos per hectare per annum, with 10 per cent on the first five pesos and 20 per cent on the remainder;

  C. Those greater than ten pesos per annum per hectare, with 10 per cent on the first five pesos, 20 per cent on the next five pesos, and 50 per cent on the excess over the first ten pesos.

• Art. 3. All royalties stipulated in oil contracts are taxed with 50 per cent of the amount thereof.
• Art. 4. Properties operated by the owners of the surface are taxed with an annual rental of five pesos per hectare, plus a royalty tax of 5 per cent of the production.
• Art. 5. For leased lands on which rental is not being paid, even though it is so stipulated in the contract covering, payment shall be made of five pesos per year per hectare; and for those on which a royalty is not now being paid, payment shall be made of 5 per cent of the production.
• Art. 6. The Department of the Treasury and Public Credit shall determine in each case whether the royalty shall be paid in kind or in cash, and shall communicate to the taxpayers within the first fifteen days of each bimonthly term the form of payment corresponding to the bimonthly term ending that fortnight. When in contracts made prior to May 1, 1917, payment of the royalty is stipulated as payable in metallic currency, the corresponding tax shall be collectible likewise in metallic currency.
• Art. 7. Those subject to the taxes established by this law, shall present at the local stamp offices during the first fortnight of each bimonthly term, a statement along the lines of the model thereof authorized by the general stamp office.
• Art. 8. Payments in kind, established by this law, shall be delivered at any of the storage stations belonging to the respective operator to be indicated by the Department of the Treasury and Public Credit, without prejudice to the interests of the operator.
• Art. 9. Cash taxes established by this law shall be paid to the local stamp office having jurisdiction over the land affected, and in case the land comes within various jurisdictions, to the office which may be designated by the Department of the Treasury and Public Credit. This payment shall be made in advance within the first fortnight of each bimonthly term.
• Art. 10. The payments mentioned in the preceding article shall be made by means of special stamps bearing the words “Oil Revenue.”
• Art. 11. Royalty values for the payment of the corresponding tax shall be calculated on the basis of the values fixed by the Department of the Treasury and Public Credit in the respective bimonthly tariffs, and deducting the pipeline transportation cost from the place of production to the shipping port, in accordance with the tariffs authorized by the Department of Industry, Commerce and Labor for the pipe lines in that region.
• Art. 12. The taxes established by this law shall be paid by the operators or the last cessionaires of exploitation rights. In making their payments to the lessors or former cessionaires, they shall deduct the corresponding taxes from the rentals and royalties stipulated in their contracts. Intermediary cessionaires, in making their payments to former cessionaires or owners, shall deduct from the rentals and royalties stipulated in their respective contracts, the amount of the taxes corresponding thereto.
• Art. 13. The proceeds of the taxes established by this law, shall be distributed as follows:
  • 60 per cent to the Federal Government;
  • 20 per cent to the State within the boundaries of which the land may be located;
  • 20 per cent to the municipality under whose jurisdiction the land in question may be located.
• When lands come under various jurisdictions, the Department of the Treasury and Public Credit shall distribute the rentals established by this law, together with the rental taxes, in proportion to the surface land coming within each jurisdiction, and royalties on the basis of the location of wells and their production.
• Art. 14. Surface owners who may not have leased their land or in any way contracted for the exploitation of the natural carbides of hydrogen, and the last cessionaires of the right of exploitation under the contracts mentioned in Article 1 of this law, shall present a manifestation [statement] within the first fortnight of the month of August this year to the Department of Industry, Commerce and Labor, within the terms prescribed in Articles 16 and 17 following. After the period mentioned claims which may not have been covered by manifestation in the form prescribed, shall be considered as free; and the denouncement and exploitation of the same shall be governed by rulings to be issued, which shall determine who shall be subject to the taxes thereon.
• Art. 15. Should the last cessionaires fail to present their manifestations within the period specified, they shall be considered as having lost all rights, and the former cessionaires and owners of the property leased, may present manifestations within the two months following the date thereof, in order that the Department of Industry, Commerce and Labor may give preference among those presenting manifestations to the last cessionaire to the right of exploitation. This preference shall be made known within the first fortnight of the month of November this year.
• Art. 16. The manifestations of owners shall be submitted together with titles to the property, or in lieu thereof, true copies of the same. The statements in question shall contain the following data:

  I. Name, age, nationality, and residence of declarant;

  II. Location of the land covered, stating the name, number of the lot, name of the hacienda, municipality, county or district, and State;

  III. Area of the land;

  IV. Date of purchase;

  V. Seller;

  VI. Purchase price;

  VII. A plan, or failing this, a complete description of the land, stating the boundaries and the names of surrounding lands and of the owners thereof, with all other descriptive data.

• Art. 17. The manifestations submitted by cessionaires shall be accompanied by the concessions in their favor or by true copies thereof. The said statement shall contain the following data:

  I. Name, age, nationality, and residence of declarant;

  II. Location of the land manifested, stating the name, number of the lot, hacienda, municipality, county or district, and State;

  III. Area of the land;

  IV. Name of the owner;

  V. Date leased by the owner;

  VI. Date of the declarant’s lease;

  VII. Rental paid by declarant;

  VIII. Percentage or royalty paid by declarant;

  IX. Duration of contract;

  X. Plan, or failing this, a complete description of the land, stating the boundaries and the names of surrounding lands and of the owners thereof, with all other descriptive data.

• Art. 18. The manifestations of owners or cessionaires which do not conform to the provisions of Articles 16 and 17 shall be thrown out.
• Art. 19. Violations of the provisions of this law are punishable by fines of from 50 to 1,000 pesos, according to the gravity of the case; without prejudice to its being turned over to the courts if criminal action is necessary.
• Art. 20. This law shall become effective from the date of its promulgation.

Transitory Articles

1. Manifestations already presented to the Department of Industry, Commerce and Labor under the terms of the decrees of February 19 and May 18 this year are valid.

2. The decrees mentioned in the preceding article are annulled, as well as all rulings which may conflict with the provisions of this law.

I, therefore, order that this be printed, published, distributed, and given due compliance.

Given at the National Palace of the Executive Power of the Union, this thirty-first day of July, nineteen hundred and eighteen.

V. Carranza

[rubric]

[Enclosure 2]

The British Chargé ( Cummins) to the Mexican Secretary of State for Foreign Affairs ( Aguilar)

No. 34

Mexico, April 30, 1918.

Monsieur le Ministre: Acting upon instructions I have received from His Majesty’s Principal Secretary of State for Foreign Affairs I have the honour to inform your excellency that the provisions of the petroleum decree of February the 19th last, imposing new taxation on petroleum-yielding lands and petroleum contracts, have been carefully examined by His Majesty’s Government.

His Majesty’s Government consider that this decree, especially as regards the provisions contained in Article 3, Article 4, Article 11, Article 12, Article 13, Article 14 and Article 16, is of a confiscatory and arbitrary nature, that it would impose a crushing burden on the oil industry in Mexico and that its effect would be to levy a higher rate of taxation on the oil industry in Mexico than now exists in any other country in the world.

The provisions of the decree are, in the opinion of His Majesty’s Government, entirely at variance with the laws and valid contracts under which heavy investments of British capital have been made in the oil lands and the oil industry of Mexico.

His Majesty’s Government observe that payments of taxation in kind referred to in the decree might effect a monopoly of the facilities now existing for the storage of oil and that it would be contrary to the meaning of the Mexican Constitution and to principles of justice to separate surface rights from subsoil rights now appertaining to those owners of land who have vested interests in the petroleum-bearing area.

For these reasons His Majesty’s Government formally and strongly protest against the enforcement of the provisions of the decree in question, in so far as British subjects and interests are concerned, and hold the Mexican Government responsible for all loss and damage that may accrue to British subjects and interests in consequence of the decree.

I avail [etc.]

[

H. A. Cunard Cummins

]

1. Not printed.
1. El Universal, August 5, 1918.