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had been framed by a constituent assembly, was proclaimed, effective May 1. Immediately following this, Ambassador Fletcher took up his residence in Mexico and a little later the Mexican ambassador was received at Washington. Before presenting his letter, Mr. Fletcher is reported to have asked if Article 27 would be retroactive. Just what reply he received is not known, but probably he was assured by the de facto government that it would not be. May 1, Carranza was inaugurated as constitutional president and normal, or nearly normal, relations seemed to have been restored once more.
But a new rift soon appeared. The constituent convention had made an earnest effort to guarantee to the Mexican people a share in the wealth of their country and to protect them against exploitation. In doing so they stipulated in the famous Article 27 that ownership of mineral resources was vested in the nation. The constitution also provides that only native born or naturalized Mexicans may acquire lands, mines and oil, but foreigners may be granted similar rights, if they agree not to invoke the protection of their government in respect to the same under penalty of forfeiture.
Before the revolutions began, chiefly under the Diaz regime, foreigners invested heavily in Mexico. The original investments have been estimated at $1,875,000,000, the British leading with $670,000,000, Americans following with $653,000,000, the French with $85,000,000, Germans with $55,000,000 and all others with $190,000,000. The American investors were concerned chiefly with railroads ($150,000,000), oil ($200,000,000) and mines ($200,000,000). By 1910, just before the end of the Diaz regime, it was estimated that the American investments had grown to $2,000,000,000, the increase being chiefly in oil.5 In recent years the investors in oil have held the front of the Mexican stage.
8The Nation, 108:630-2.
*New York Times, May 18, 1920, p. 23. Ann. Acad., May, 1917, Sup., 15f.
61bid., July 6, 1919, IV, 1.
It has been known for nearly a century that there was oil in Mexico, but the great development of the oil industry has taken place in the last twenty-five years. In 1901 Mr. E. L. Doheny, of San Francisco, visited the Tampico fields, secured a claim to some land and organized a company. The Waters Pierce Company and other American concerns secured concessions, as did also Pearson and Son (Cowdray).
In 1919 the British oil interests in Mexico amounted, according to El Universal, a Mexican daily paper, to about $500,000,000, divided among fifteen companies. By far the largest of these was the Aquila Petroleum Company (Cowdray). There were several companies of an international character, such as the Royal Dutch-Shell combine and others which were said to be controlled by the British government. American capital was heavily represented in some of these, $25,000,000 having been put in the Royal Dutch-Shell in 1916. The Standard Oil of England and the Standard Oil of Mexico were also listed as British companies operating in Mexico.8
In 1919, 299 wells were in operation in Mexico with a capacity nearly double that of 230,000 wells in the United States. Of the 299 wells, 204 belonged to American citizens. The American wells had a capacity of 1,300,000 barrels a day, one well alone spouting 300,000. British subjects owned 69 wells with a capacity of 200,000 barrels a day. The other 26 wells were of Mexican and mixed ownership and their capacity was about 100,000 barrels.
By the middle of 1919 claims against Mexico for damages amounting to $500,000,000 had been filed with the Department of State at Washington. The claims were based on the destruction of new values in property created by American energy; the destruction of business by confiscatory taxes and unrestrained banditry, which made business operations impossible; the destruction of original values through an unstable government; the destruction of the financial and credit system through government decrees; the loss of profits which would have been made by the con
6Ibid., Aug. 29, 1919, IV, 7; Aug. 19, 5:3.
tinuation of business without interruption. A year later the figure given by the Fall Committee amounted to $505,002,434, of which $14,675,000 was for 784 deaths, $2,846,301 for personal injuries, and $200,000,000 for oil, stock ranches, plantations, etc.ca
The foregoing figures make it easy to understand the peculiar interest of American investors in oil in Article 27 of the Mexican constitution, and in the attitude of the Carranza and Obregon governments toward that article and toward the subject of taxation.
February 19, 1918, the Carranza government, acting under the authority of the constitution of 1917, levied a tax on oil leases ranging from 10 per cent where the rental amounted to five pesos ($2.50) or less per hectare for a year up to 50 per cent of all over ten pesos. Under Article 27 all owners or lessees who desired to operate the land held by them were required to file a statement within three months; all lands not so registered were to be open to claims for leases. Only leases executed prior to May 1, 1917, would be recognized.?
The oil operators at once protested against this as confiscatory, being an attempt to deprive them of property rights in the subsoil and of exemption from any tax on oil rights acquired by grants from President Diaz.
This led to a long drawn out controversy, the precise merits of which do not concern us. The Mexican constitution of 1917 was put out as a revision of the constitution of 1857. Some American opponents of the claims of the oil interests maintained that they never had acquired title to the subsoil, as Diaz had violated the constitution of 1857 in attempting to grant such rights. However, it does not appear that the Carranza government ever put forward this claim. It simply pointed to the constitution of 1917 and asked for obedience to the laws.
Soon after the decree was issued the American Department of State protested against it as confiscatory or tending to confiscation, as did also the foreign offices of France,
6aNew York Times, July 6, 1919, IV, 1. June 1, 1920.
7 Legislacion Petrolera: Leyes, Decretos y Disposiciones Administra. tivas Referentes a la Industria del Petroleo, 1783-1921, p. 102.
Great Britain, and Holland. A few concessions were made by Carranza, among them an extension of the time for registration to August 15, and a slight modification in the tax. On the principle involved he would yield nothing.
For the time being the American government seems to have contented itself with the protest. About two months later President Wilson, in addressing a delegation of Mexican editors (June 7), said that “we had no right to dictate to Mexico in any particular with regard to her own affairs,” and in other words gave expression of friendship.
The various groups interested in Mexico now began to organize for protection. Early in 1919 a financial agent of Mexico arrived in New York to negotiate a loan, whereupon an International Committee of Bankers (ten American, five British, five French) was organized to look into the matter. If the government would not take joint action with any other power, the bankers would act jointly with foreign bankers and later they agreed that no loan should be made to Mexico without the agreement of the several groups. There was also a National Association for the Protection of American Rights in Mexico, the directorate of which was interlocked with that of the bankers' association, and this organization sent Mr. E. L. Doheny to Paris to lay their claims before the Peace Conference.
The Senate now took part in the discussions and directed its Committee on Foreign Relations to investigate. Numerous hearings were held in Washington, then a sub-committee, of which Senator Fall was chairman, went to Texas and the Mexican border. Further fuel was added to the flame by the alleged kidnaping of the American consul W. A. Jenkins. Soon after this Senator Fall introduced a resolution in the Senate calling for a break in diplomatic relations, but, under the advice of President Wilson, the resolution was dropped.
But the oil men continue their protests against the action of the Mexican government and again ask for the protection of the United States. Failing to get satisfactory assurances then they mutually pledged themselves not to pay the taxes
fixed by Carranza. They claimed that the taxes were confiscatory and threatened to shut down.
Charges were freely made by some that the oil men paid revolutionary leaders to stir up trouble. Such charges were vigorously denied, but the oil men admitted that they paid the revolutionists to secure immunity or protection.s
Whether it had any outside help or not, a revolutionary movement was gaining strength and in May, 1920, Carranza was driven from Mexico City and murdered. De la Huerta now set up a provisional government as paving the way for Obregon as constitutional President. In seeking recognition, Huerta said that Mexico wished to meet its obligations.
Business men now warned Secretary Colby against premature recognition and Ambassador H. P. Fletcher suggested that, as a condition of recognition, a promise should be exacted that American citizens should not be deprived of their property without compensation, that that taken by Carranza should be restored, and that Article 27 should not be made retroactive. About this time Senator Fall's committee reported to the Senate and advised that a new treaty be exacted.
The treaty should provide that:
Article 130, regulating religious and secular teaching, should not apply to Americans.
Article 27 should not apply to Americans.
Article 33, authorizing the President to expel foreigners, should not apply to Americans.
A claims commission should be appointed at once to pass on American claims for damages.
If these demands were granted, then the United States, preferably the government thereof, should extend financial aid for the refunding of the entire debt and the rehabilita
8In this connection it is interesting to note that in January, 1922, the director of the National Association for the Protection of American Rights in Mexico resigned under pressure of his associates because of a letter he had written promising “utmost help to the side of any capable, sincere and aggressive Mexican who desires to restore to his country the peace, prosperity, credit and honor it once claimed."