monopoly. Every private right acquired prior to May 1, 1917, when the new constitution was adopted, will be respected. Article 27 will never be given retroactive effect. On the question of taxation he said that the "investors of the more powerful nations have the idea that we should submit our taxation plans to them for approval." Every federal tax was, he said, applied equally to natives and foreigners. The increase in the petroleum tax was for application to the foreign debt. To call the tax confiscatory was absurd. The fact that the Doheny group had pumped $28,000,000 net profits out of Mexico in 1920 was sufficient proof of this, yet they had flooded the United States with complaints that the policy of the Mexican government was ruinous.19 The tax was now 15 per cent in kind and 10 per cent on the sale price and the government announced that it was going to collect arrears long over due and intimated that there would be an increase, effective July 1, making the tax 35 cents a barrel on crude petroleum and 25 cents on fuel oil. The Standard and the Mexican Petroleum companies and their allies again protested, declaring that the taxes were confiscatory and claiming exemption from the effects of Article 27 under Article 14, which says that "No law shall be given retroactive effect to the prejudice of any person whatsoever," and at once proceeded to "make hay while the sun shines." Exports for June jumped 3,500,000 barrels over the shipments of the preceding month and those for July fell to about one-fifth those for June. Although President Obregon had announced that the increase of revenue would be used to meet the government's debt obligations the oil men, not satisfied with a protest, organized a shut-down. It is easy to understand why taxes were in arrears. When civil war was raging with two or more governments contending for the treasury the companies naturally did not care to pay to one and then perhaps be called on to pay later to another for the time being successful contestant. 19Times Current History Magazine, XIV, 895. Some of them did pay large sums, estimated at $30,000 a month, to General Palaez, a lieutenant of Carranza, for protection. He is said to have secured arms and ammunition from the United States and to have become a large shareholder in some of the American companies. After the death of Carranza he went over to the new government and was made commander of the new forces in the Tampico district. The Mexicans charged that the shut-down was made to force Obregon to rescind the increase in export taxes by leaving him without money with which to pay the soldiers and so bring on another revolution. While General Palaez was absent, one of his lieutenants attempted to start a revolution, but it amounted to nothing. That the oil people had anything to do with it is not clear.20 A few days after the shut-down a sensation was caused by the arrival of five units of the American fleet off Tampico (July 4). Some pretext had to be found and the Secretary of the Navy announced that they had been sent there to protect the tankers sailing from Tampico and Tuxpan as they were under the jurisdiction of the Shipping Board, which needed the oil for fuel; also, to protect American property which might be jeopardized by labor troubles due to the shut-down.21 Now it happened that American delegates to the International Association of Machinists were at that very time attending a convention of the Mexican Federation of Labor at Orizaba and they at once telegraphed the situation to Mr. Samuel Gompers. That gentleman at once protested to Secretary Hughes against allowing the navy to be "exploited by the employing interests for the avowed purpose of overawing the workers who are now engaged in a lockout imposed upon them," and Senator Lafollette introduced a resolution prótesting against such use of the fleet without authority from Congress. General Palaez was appointed commander of the forces at Tampico and instructed to maintain order. Also, the pretext of the need for fuel oil for the Shipping Board was 20 Times Current History Magazine, XIV, 973, 1075. 21Ibid., 974. removed by a statement from the chairman to the effect that it had an abundant supply of oil and was not dependent on the Mexican field. Under pressure of such varied influences the order for withdrawal was soon given and the last warship departed just nine days after the first one arrived.22 President Obregon declared that the shut-down was brought about as a part of an attempt to secure the abolition of the tax and to bring about intervention. The sending of Palaez to Tampico was to head off any pretext for landing of marines. Obregon now told the oil men that, under the Mexican constitution, they must compensate the idle employes. He also tried to find employment for the workmen. When The oil interests could not very well defeat the 15 per cent tax in kind, but they imported, free of duty, American methods of avoiding the 10 per cent tax in cash on exports. This they did by organizing various subsidiary companies to which the producer "sold" his oil for about 40 cents when oil was selling at $1.50 to $1.75. They now bewailed to the Mexican government that the "producer" was being oppressed by the corporations which shipped the oil. the government offered to collect on the basis of $1.00 a barrel when the New Orleans price was $1.75 (it cost less than 75 cents to ship) they cried "ruin," as this would leave them only 30 cents out of 40 cents.23 Neither were they willing to pay this part of the tax in kind. When Obregon pointed out that the British companies were observing the law and were exporting oil at a profit, his figures were disputed by the American Association. However, he stood firm and announced that exports would cease, if payment was not made by September 1. The mountain had refused to come to Mahomet, so Mahomet decided to go to the mountain. The heads of the oil companies, Mr. W. C. Teagle of the Standard, Mr. E. L. Doheny, of the Mexican Petroleum, Mr. H. F. Sinclair, of 22 Times Current History Magazine, XIV, 894-5. 28 Ibid., 974. the Sinclair Consolidated, Mr. J. W. Van Dyke, of Atlantic Refining, and Mr. A. L. Beatty, of the Texas Company, went to Mexico where they met representatives of Obregon and reached an agreement September 3, 1921. This agreement provided that they might pay the taxes in Mexican bonds. As they could then buy these bonds at about $40 while the par value plus accumulated interest amounted to $135 this gave them all they had asked for in the reduction of taxes; also, it enabled the Mexican government to get the equivalent of the full tax in the cancellation of its bonds. The terms of the agreement were kept secret so the price of bonds would not go up, and the sky had a rosy hue. But the oil men had not counted in the bankers. The latter soon found out what was going on and notified the oil men that it was unethical, that it must stop. They did not propose to lose, or have their clients lose, the profits on the bonds which they had bought at $40 or less, amounting to about $150,000,000. The debt, said they, must be refunded. The result was that the bankers were invited to a conference with the Mexican government.24 Before this conference was held, even before the oil agreement had been signed, the Mexican Supreme Court had rendered its decision (September 1) that Article 27 was not retroactive and that it did not affect property rights lawfully acquired before May 1, 1917. It is possible that Obregon's yielding spirit was due to a genuine desire for recognition by the United States. The oil, men breathed a sigh of relief and announcement was made from Wall Street, that the "financiers foresee Mexico recognized." However, the Department of State had nothing to say. Mr. Thomas W. Lamont journeyed to Mexico as representative of the bondholders and returned without having effected any settlement. After waiting several months President Harding announced (February 17, 1922) that there was no prospect of an early resumption of diplomatic relations with Mexico because it was impossible to obtain a guarantee without which recognition would not be 24Times Current History Magazine, XVI, 1016. extended to the Obregon government.25 All yielding had been in vain so far as concerned recognition. The Early in 1922 a curious and perhaps unexpected result of the refusal to recognize the Obregon government was reflected in the decision of a New York judge. case arose from a suit by the Mexican government against a contractor for violation of a contract for submarine chasers. It was ruled out of court by Justice Donnelly, in the Supreme Court of New York, on the ground that the Mexican government had not been recognized by the United States. In this he was simply following a precedent set in dealing with Soviet Russia. In October a contractor brought suit against Mexico in a New York Court and secured an attachment against Mexican property located there to satisfy a claim amounting to $1,161,348.90. As the Mexican government had not been recognized his attorneys took the position that it was liable to suit and that its property could be attached. Mexico at once called the attention of Secretary Hughes to the matter and closed the Mexican consulate at New York. Secretary Hughes took the matter up with Governor Miller, of New York, and succeeded in getting the attachment vacated, whereupon the consulate was reopened.25a The immediate effect of the agreement on taxation was a large increase in the exports of oil' and consequently some additions to the revenue. The exports for December, 1921, amounted to 18,000,000 barrels. There was also an increased activity in boring for oil, the wells now numbering 510 as against 299 in 1919, with a potential output of 5,613,289 barrels daily as against 1,300,000 in 1919, though the actual output was much less than the capacity. Not all of this increase came after September 1, for even the Americans had not stopped boring new wells when disputing with the government.26 Although Mr. Lamont's October journey to Mexico had 25 New York Times, Feb. 18, 1922, p. 7. 25a New York Times, Oct. 28, 1922, 1:4. Nov. 30, 30:2. 26 New York Times, Feb. 13, 1922, p. 21. |