HL Deb 23 May 1938 vol 109 cc325-32

LORD NEWTON asked His Majesty's Government whether they can make a statement regarding the present position resulting from the suspension by the Mexican Government of diplomatic relations with this country. The noble Lord said: My Lords, in consequence of the peculiar habits of this place, one of which is that important debates do not start before half-past four in the afternoon, I do not propose to detain your Lordships for more than a few minutes. I shall compress what I have to say within the shortest possible limits. There may be noble Lords present who remember the debate which took place on the subject of Mexico some weeks ago. In that debate I ventured the opinion that we should never obtain any satisfaction unless we acted in conjunction with the Americans. After all, that is obviously the common-sense way of looking at a matter of this kind. If two persons are assaulted by a robber, they do not devise separate means of resisting him, they offer a joint resistance, and that is what one should have thought would have been the obvious thing to do in this case.

The Mexican Government have, I have not the smallest doubt in my own mind, a most profound dislike both for this country and for the United States, but it is not quite the same kind of dislike. The dislike for America is accompanied by a considerable fear of that country, whereas they stand in no fear of us at all because we are incapable of doing them any serious harm. The Mexican Government have no scruple whatever in differentiating between the two countries. The Mexican Government owe both countries very large sums of money for damage committed during the revolution. When the time came for paying the American instalment it was paid without demur, and without making any trouble at all, but when our turn arrived we received a Note couched in what I might call almost offensive terms, and accompanied by an announcement that they meant to break off diplomatic relations with us. When I advocated joint action with America I was of course perfectly well aware of the difficulty attending such action. Some people are always talking about the mutual love which exists between the two countries. It is an undoubted fact that amongst individuals there is a widespread friendship, but I cannot remember any instance in which the American Government showed any sort of desire to co-operate with us. On the contrary, it is an action which they have appeared to shrink from to the utmost possible extent, and I do not think any one can recall a case in which the American Government have wholeheartedly supported our policy, whatever it was. In view of that fact it seems almost impossible to act in conjunction with them.

To take this very case, the American Government took action without consulting us at all. The action of the American Government came to us as a complete surprise, although the circumstances were similar and we should have thought that both countries would have acted together. That being so, our Government, in spite of my argument, although I admit that very few people ever listen to my argument, adopted a different line, and the Mexican Government are now confronted with two claims. Can there be any doubt as to which claim they will accede? Clearly anybody must see that whenever a person is disputing with two claimants he will decide for the one he is most afraid of. It is, therefore, an absolute certainty that if anything is done at all it will be done in obedience to the American demand, and we shall get nothing at all. That being so, it is rather difficult to see what we can do. I give the Government credit for wishing to do the utmost to protect British subjects in commerce or elsewhere, but I do not feel at all sure, however good their intentions are and however good their policy may be in principle, that it is a practical one.

I still think the course which I ventured to suggest would have been by far the more practical one and might have achieved some results. But I do not know that it matters very much. President Cardenas, in whom for some strange reason the American Government placed considerable confidence, has brought his country to such a state, has so completely disorganised it, has so seriously affected all industries, that he has produced a revolution, and a revolution in Mexico is an event which lasts for a long time, and it will probably end in paralysing the country and reducing it to destitution. In those circumstances neither the Americans nor ourselves are likely to get anything at all. Therefore, I very much regret to say, it does not matter very much whether the Government take the same view as I do. I think the ultimate result will be that nobody will get anything out of the Mexican Government at all.


My Lords, I would like to thank the noble Lord for giving the Government an opportunity of making a further statement on this matter. Your Lordships will in the first instance wish to be apprised of the developments which have occurred since I last spoke on this subject on March 30. At that time I stated that His Majesty's Government, with a view to deciding what steps could most appropriately be taken to safeguard the interests of the British shareholders involved, were examining the situation resulting from the decree published by the Mexican Government on March 18 expropriating the properties of the Mexican Eagle Company and of various American-owned companies. Following upon this examination His Majesty's Minister at Mexico City, in a Note of April 8, informed the Mexican Government that, although His Majesty's Government did not question the general right of a foreign Government to expropriate on bona-fide grounds of public interest and on payment of adequate compensation, this right did not serve to justify expropriations essentially arbitrary in character.

Mr. O'Malley went on to draw attention to various irregularities in the legal proceedings of which the Mexican Eagle Company had been the object, culminating in an adverse verdict by the Supreme Court which was not, in the view of His Majesty's Government, justified on the facts, with the result that the company was called upon to implement an award quite beyond its economic capacity to fulfil. He pointed out that non-compliance with this verdict did not warrant the adoption of such a drastic measure as expropriation, and formally requested the restoration of the confiscated oil properties as the only way in which the situation could be remedied. On April 12 the Mexican Government replied at length refusing this request and challenging the right of His Majesty's Government to intervene to protect the shareholders of a Mexican company. Their Note alleged inter alia that the Mexican Government were determined to pay for the expropriated properties and that the Republic's capacity to pay was a real and certain fact. On April 21 Mr. O'Malley informed the Mexican Government that the important British interests involved gave His Majesty's Government an undoubted right to make representations on their behalf and he again requested the restitution of the expropriated properties. On April 26 the Mexican Government, in a Note to which Mr. O'Malley replied by stating that His Majesty's Government did not consider it necessary to pursue this aspect of the question further at present, reiterated their view that there was no basis for diplomatic intervention. They also stated that the Mexican Eagle Company had been invited to confer with the authorities concerned with the object of establishing the compensation to which it might be entitled.

On May 11 Mr. O'Malley requested the Mexican Government to make immediate payment of a third instalment of approximately £20,000 sterling outstanding since January 1, 1938, in settlement of certain British claims arising out of revolutionary action between 1910 and 1920, and which the Mexican Government had agreed to pay in notes exchanged on December 31, 1935. In this Note he referred to the other substantial existing debts both internal and external which the Mexican Government had failed to discharge. Such failure, he pointed out, must be regarded as in itself rendering unjustified the expropriation of the oil companies, an essential condition of the validity of which would be the payment of full and adequate compensation. Two days later the Mexican Minister of Foreign Affairs handed to Mr. O'Malley a Note which enclosed a cheque for the third instalment and argued that under the contractual agreement relating to this claim the Mexican Government were entitled to defer payment on the annuities. In addition to this argument, which Mr. O'Malley was instructed to point out to the Mexican Government is untenable under the agreement in question, the Note took strong exception to the reference to Mexico's internal indebtedness in His Majesty's Minister's Note of May 11.

The Minister of Foreign Affairs at the same time informed Mr. O'Malley that it had been decided to withdraw the Mexican Minister from London as a protest against the Notes recently addressed to the Mexican Government on the oil situation. The Mexican Minister in London made the necessary communication to the Foreign Office on May 14, stating that the archives of the Legation would be placed in the charge of the Mexican Consul-General. His Majesty's Government then instructed Mr. O'Malley to inform the Mexican Government that His Majesty's Government had decided to withdraw him and his diplomatic staff from Mexico and to place His Majesty's Legation in charge of the Acting Consul-General. Mr. O'Malley left Mexico City on May 20 and the diplomatic protection of British interests in Mexico has been taken over by his Danish colleague, whose Government has been good enough to respond to a request for their assistance in this respect.

In thus recapitulating the outstanding features of the Notes exchanged between His Majesty's Government and the Mexican Government, the text of which is shortly to be issued in comprehensive form as a White Paper, I have been concerned to emphasize that throughout the correspondence His Majesty's Government have endeavoured to secure respect for the plain principles and precepts of equity and International Law. Whilst, as stated in the first of their Notes, His Majesty's Government fully admit the right to expropriate on bona-fide grounds of public interest and on payment of adequate compensation, it was at once evident to them on reviewing the circumstances of the case that the Mexican Government could not justify their action on either of these grounds. The expressed willingness to indemnify the expropriated companies became illusory in the light of the magnitude of the interests involved and against the background of Mexico's extensive debt obligations, of which only an insignificant portion has as yet been discharged, including the substantial sums due to previously expropriated agrarians both Mexican and foreign.

The argument of public interest which was adduced in the first article of the Mexican expropriation decree was shown to be equally untenable when considered in relation to the fact that the employees in the oilfields owned by foreign interests enjoyed conditions above the normal level prevailing in Mexico. Their wages were, moreover, almost double those paid to workmen in other Mexican industries. It was indeed the workmen themselves who were likely to be the first to suffer as a result of the changed circumstances, and it is significant in this respect that even before the Mexican Government announced their decision to expropriate the companies, official spokesmen were warning the public that it might become necessary in the immediate future to reduce the wages of workmen in the Government service. It seemed clear that the labour issue, on which the companies themselves were consistently prepared to negotiate on a fair and equitable basis, had been made the pretext for a purely confiscatory action. A labour award inherently unjust and beyond the companies' economic capacity to fulfill was made the basis for depriving them of their property altogether, in return for a promise of compensation which appeared quite illusory. The expropriation was thus the culmination of a series of events from which it cannot be separated. Its nature must be judged from the acts which preceded it, including, as I mentioned in my previous speech, the refusal of the Supreme Court to examine the financial ability of the industry to bear the burden of additional liabilities imposed upon it by the labour award of December 18, 1937.

It is also pertinent to point out that, at the time when the Mexican Government decided to promulgate the expropriation decree, representatives of the companies were engaged in discussing with officials of the Mexican Government a labour formula, submitted on their own initiative, which would have increased the annual liabilities of the companies to the fullest extent compatible with their capacity to pay out of current earnings. The combined profits of the oil companies, it might be observed in passing, averaged no more than 23,000,000 pesos during the years 1935 to 1937 on a capital investment of thousands of millions of pesos. Lastly, the expropriation decree itself, which interrupted these negotiations when they appeared to be approaching a successful issue, constituted a step far beyond what was necessary if the real object of the Mexican Government had been (as it was stated to be) to promote the national interests or the welfare of the Mexican wage earners.

For all these reasons His Majesty's Government felt fully justified in taking the line that only by a restoration of the properties could justice be done. I can, however, assure your Lordships that although the United States Government have so far elected to concentrate their efforts upon an attempt to secure adequate compensation rather than upon a demand for the restitution of the properties themselves, they have fully understood the different attitude adopted by His Majesty's Government, who much appreciate their sympathetic reception of the explanations of their policy which His Majesty's Ambassador has from time to time imparted to them.

In conclusion I would add that the decision of the Mexican Government to suspend diplomatic relations has introduced a new factor into the situation which obliged His Majesty's Government to consider what course it would be most appropriate to pursue in these circumstances. It is proposed to defer a definite conclusion in the matter until His Majesty's Government have had the opportunity of reviewing the whole situation with Mr. O'Malley, whose arrival in London from Mexico is expected towards the end of this month. I must add that throughout this unhappy affair His Majesty's Government have felt that they must reserve their right to take all possible steps in their power to protect British interests abroad.