mvn ^atk *tate atoUcge of Agriculture M (ftornell 3llttt»erBtt8 attfaoi, S7. ^. ffiibracg Cornell University Library HC 135.M65 industrial Mexico; 219 '^SlBlS^^^ 3 1924 013 743 178 The original of tliis book is in tlie Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013743178 INDUSTRIAL MEXICO AN INDIAN WITH HIS LOAD, MEXICO CITY INDUSTRIAL MEXICO 1919 Facts and Figures BY P. HARVEY MIDDLETON {ILLUSTRATED) Mexico is the treasure hotase from vrhich will come the gold, silver, copper and prec- ions stones that will build the empire of tomorrow, and make the future cities of the world veritable Jerusalems. — Cecil Rhodes NEW YORK DODD, MEAD AND COMPANY 1919 COPTWGHT, 1919 bt dodd, mead and company, IkO. FOREWORD During his travels in Mexico gathering the facts and figures contained in this book, the au- thor was fortunate enough to secure the active co-operation of the American Conunercial At- tache, Edward F. Feely, and was also greatly assisted by Colonel Paulino Fontes, Director General of the Mexican railways under govern- ment control, Rafael Zerecero, his assistant, and M. Munoz, the General Superintendent of the same railways. He especially wishes to extend his thanks to Robert H. Murray, correspondent in Mexico City for the New York World and Di- rector of the Creel Committee on Public Infor- mation in Mexico during the war, to George F. Weeks, correspondent of the United Press and editor of the Mexican Review, and to C. A; Mc- Queen, Chief of the Latin American Division of the U. S. Bureau of Foreign and Domestic Com- merce. For photographs the author is indebted to C. B. Waite of Mexico City, and to the Mexi- can Petroleum Co., of New York. P. H. M. New York City, August 25, 1919. INTEODUCTION Business revival. Trade ambassadors visit Mexican capital. Growth of foreign trade. Native capital insufficient. Unwise legislation may be amended. "Mexico is the richest undeveloped accessible country in the world." One evening in May, 1919, I was dining in Mexico City with the correspondent of a great American daily newspaper, a man who has spent twelve eventful years in Mexico, who has gone through all the revolutions, and who is today an unquenchable optimist on Mexico. The words at the head of this page are his. "In the opinion of those who have carefully studied the situation," he continued, "Mexico is on the eve of the greatest era of development and prosperity that the country has ever seen. Worldwide demand exists for substantially everything that Mexico can produce. Many of these demands can be satisfied from no other source than Mexico. This fact, coupled with the impressive truth that, in the present stage of the world's progress and necessities, no rich vi INTRODUCTION undeveloped country like Mexico— particularly when it adjoins the youngest, wealthiest, most progressive nation under the sun — can be per- mitted to lie fallow, seems to place in the cate- gory of the incontrovertible the declaration that Mexico's economic star is in the ascend- ant. It may not soar or take unto itself full lustre for, possibly, months, or one or two years. But that it will do so, and soon, is as certain as that the night follows the day. ' ' The Mexican Government rests under the heavy responsibility of continuing to create conditions which will enable the Republic to come into its own. It may be conservatively assumed that this will be done. Mexico has bled through nearly nine years of revolution. There will not be nine more years of revolu- tion and lawlessness there. Even though the Mexicans themselves may be inclined to permit it, which is unthinkable, the world outside of Mexico will not. The overthrowing of the old regime has, it is true, resulted in much unwise legislation, in some cases jeopardizing the industries created by American and European capital and energy — industries upon which Mexico is absolutely dependent. But the old order of things in Mex- ico, with single families owning millions of INTRODUCTION vii acres and a dozen families owning entire states, has gone never to return. You can no more re- store the Mexico of Porfirio Diaz than you can bring back the Russia of the Czars or the France of the days of Mme. de Pompadour. The pres- ent situation arising from the attempted "na- tionalization ' ' of properties obtained by foreign investors either by concessions legally granted by former Mexican governments or by outright purchase, is equally impossible. The foreign holders of such properties, provided they com- ply with the laws under which their lands were originally acquired, have as clear a title to them as you have to your hat. It is a fact that Mexico's total foreign debt is only about $500,000,000. Such a sum is abso- lutely trivial when one considers that Mexico possesses millions of acres of virgin soil, oil fields which produced over 63 million barrels in 1918, thousands of mines of gold, silver, lead and copper, mountains of iron, unexploited fish- eries, vast forests of timber which contain many varieties of precious hardwoods and dyewoods, and such a range of climates and soils that it is possible to produce all the cereal crops and 90 per cent, of all the known fruits of the world. Humboldt called Mexico "a beggar sitting on viii INTRODUCTION a bag of gold," and the .present situation of "the greatest treasure house in the world" could not perhaps be better described. For, while Mexico has defaulted for several years in the payment of her foreign obligations and is now seeking financial assistance from other na- tions, she has unexploited natural resources, the mere scratching of which would provide the means to clear off all her national debt and place her on a sound financial basis. Although there are still bandits and rebels in Mexico, and probably will be for a long time to come, I found in my recent trip from the Texas border to Vera Cruz a great many indi- cations that Mexico — provided there is no really serious political disturbance — is "coming back." Mexico City during the time of my visit there in April and May was the meeting place for trade ambassadors from all parts of the world. These included manufacturers, bankers and en- gineers from the United States and Canada, from Great Britain, France, Spain, Italy, Hol- land, Denmark, Norway, Argentina, from Cen- tral and South America, and from Japan. These men were seeking orders and opportuni- ties for investments, and were finding both. There were delegations from New York, Phil- adelphia, Chicago, San Antonio and Dallas. INTRODUCTION ix There was a party from Oklahoma arranging to invest $25,000,000 in the oil fields, another from Christiania, Norway, with a $15,000,000 oil proposition ; there was a group from Tokyo, Japan, investigating the newly discovered oil deposits in the Gulf of California, and there were a number of mining engineers from San Francisco. As a result of the tour in April, 1919, of Mississippi Valley business men throughout Mexico, American manufacturers secured large orders and made valuable con- nections. The rehabilitation of the Mexican railways will caU for American railway sup- plies to the extent of about $50,000,000. The Chicago Association of Commerce has opened a branch office in Mexico City, and the American Chamber of Commerce of Mexico has formed a New York auxiliary. Mexico, with an area of 767,290 square miles, is seventeen and a half times the size of Cuba, and infinitely greater in resources. Cuba's products are limited to the tropical, chiefly sugar and tobacco. Mexico has these and also metals, oil, timber, corn, wheat, and livestock as possible products. It is three times as large as all of Central America and the West Indies combined, yet it has a population of only 15,- 063,207, or 19.6 per square mile. X INTRODUCTION Because of geographical situation and the needs of each for the natural as well as the manufactured products of the other, fully 80 per cent, of the foreign trade of Mexico will always be with the United States. Mexico pro- duces raw materials in the shape of minerals, hard woods, fibre, rubber, hides, oil and a great variety of other products for which there is a heavy and constant demand in this country. On the other hand many of the natural products of Mexico find their way back to Mexico after having entered into various forms of manu- factures. It has been estimated that a revival of business in Mexico will mean an increase in the export trade of 1,000 per cent. Mexican oil production has increased fifty-four times since 1907. The total export business of Mex- ico for the year 1918 amounted to $183,652,125, American money, of which the United States took $175,037,150. No one knows the extent of Mexico's natural resources, for they have never been adequately surveyed or estimated. Mexico is in the posi- tion of a mismanaged, fundamentally sound business. An impressive indication of the eco- nomic vitality and resiliency of Mexico is af- forded by the fact that last year, in face of ruin and prostration wrought by the revolution, her INTRODUCTION XI revenues were greater than in any other similar period in her history. Native Capital Insufficient Edward F. Feely, American Coromercial At- tache in Mexico, said to me, during my recent visit to Mexico City: "Mexico cannot finance her reconstruction with native capital. She does not possess it. If she did it is question- able if it would be available. Mexicans are proverbially loath to enlist what sparse capital they have in development enterprises in their own country, no matter how attractive and con- servative. They are not an investing, develop- ing people. Foreign capital is needed for the rehabilitation of her lines of communication — principally for rolling stock and motive power. Reconstruction is being hampered by inade- quate transportation facilities. ^'Foreign capital is required to prosecute the development of her petroleum fields, her mines, her farms, her sugar and coffee plantations, her fisheries, her timberlands. Millions of dollars of American capital is now waiting to go into Mexico — eager to enter the country. Some of it is already being slowly released for use there. But the bulk of it is waiting untU more definite xii INTRODUCTION assurances are obtained that sane, rational and just legislation will be enacted which will sup- ply foreign investors with the proper and ade- quate protection which they have a right to ex- pect and demand. It is safe to assume that the necessary safeguards will be forthcoming. Al- ready the Mexican government is evincing con- servative tendencies of a nature which are in- dispensable to the establishment and practice of a friendly and mutually advantageous co- operation between states, and to the encourage- ment of international, commercial and invest- ment relations." Legislation to Be Amended? In view of the widespread interest in Article 27 of the new Constitution of Mexico (see Chap- ter XI), which if literally interpreted would seriously injure all American interests in Mex- ico, it may be stated that during my visit to Mexico in April and May, 1919, business men of good standing with whom I talked were of the opinion that an amendment would be made which would protect foreign interests. Announcement was made by one high official that the Mexican Government will pass a new law recognizing the right of ownership in the sub-soil in all properties purchased before the INTRODUCTION xiii promulgation of the new constitution, the date of which was February 5, 1917. Properties purchased after that date, he said, would be subject to the law which gives the subsoil to the nation. The possibility that American financial inter- ests, acting of course with proper regard to the assurances which are given as to the safety of previous investments, may assist the Mexican Government in floating a loan in the United States, has recently been much discussed by merchants and manufacturers who look upon Mexico as logically one of the best markets for American goods. It is said that the present government in Mexico is considering the recog- nition and refunding of the debts contracted under the Huerta regime. If such a step by the Mexican Government is in contemplation, then, if stable conditions are assured and pro- tection is given to capital already invested, the prospects for a rapidly developing trade with Mexico would be better than they have been in a long period of years. CONTENTS Introduction Business revival. Trade ambassadors visit Mex- ican capital. Growth of foreign trade. Native capital insufficient. Unwise legislation may be amended. CHAPTER I Government Railways PAGE Laredo, Texas, to Mexico City. Conditions in the capital. Shortage of equipment. Growth of railways. Trip through the danger zone. South- em lines. Equipment in service. CHAPTER II Private Railways and Steamships .... 22 Southern Pacific of Mexico. Proposed new lines. Difficult construction. Kansas City, Mexico and Orient. Private freight trains. Small Ameri- can lines. Building a tropical railroad. Curi- osities of Mexican railroading. Statistics. Mex- ico to Japan. New Orleans to Vera Cruz. New York to Tampico. Coastline and ports. CHAPTER ni Oil Industry 39 Who's who. New developments. Submarine de- posits. Rentals. Evolution of industry. Location CONTENTS PAGE of fields. Varieties of fuel oil. Output of each company. Exporting companies. CHAPTER IV Mines 61 Operations resumed. New enterpiises. Jap- anese invasion. The richest deposits. Coal lands. Statistics. CHAPTER V Agbicxjltuee 85 Orange crop. Banana flour. Opportunities. Vegetable oUs. Cereals. Cotton. Guayule rub- ber. Rubber factories. Cattle industry. Sisal. Vine culture. New developments. Irrigation. CHAPTER VI TiMBEE 106 Vast tracts of pine. Mahogany. Valuable hard woods unknown to American markets. "Woods for shipbuilding. Decay resisting species. Dye- woods. National Forestry School. CHAPTER VII Trade Opportunities 116 Agricultural implements and machinery. Henry Ford in Mexico. American trade associations open branches in Mexico. List of articles ur- gently needed. Salesman's itinerary. New enter- prises. Newspapers and magazines. Manufac- turing in Mexico — shoe factories, breweries, tex- CONTENTS PAGE tile mills, tobacco factories. Japanese competi- tion. German competition. American automo- biles in Mexico. Laundry and cleaning machin- ery needed. Opportunity for American dyes. Sport in Mexico. Grand opera in the bull ring. Trade bodies in Mexico. Present an opportune time to develop trade. Patents and Trade-marks. CHAPTER VIII SuGAB AND Coffee Plantations 157 Sugar mills resuming operations. Equipment needed. Opportunities for American capital. Large scale operation. Coffee production. CHAPTER IX Credit and Banking 168 Local banks. American trade largely on cash basis. Bank credits. Sales terms of American manufacturers trading with Mexico. Mexican bank finances shipments. New Banking Law. CHAPTER X National Debt 207 Paper money. Items in national debt. Unpaid interest. Railway debt. International Bankers Committee. CHAPTER XI Mexican CoNSTrrunoN of 1917 220 Effect upon foreign investments. Taxes. De- cree of February 19, 1918. American Giovem- meut protests. President "Wilson's address to CONTENTS PASS Mexican editors. Protests from British and French Governments and replies of Mexican Gov- ernment. CHAPTER XII GOVEKNMENT DBPABTMENTS AND INSTITUTIONS . 253 National Congress. Departments. Education. Museums. Tel^^aphs, Post OfBlce and Harbours. Libraries. Beligion. ILLUSTRATIONS An Indian with his load Frontispiece OPPOSITE PAOB Blockhouse on Mexican By 16 Explorers' Train, Mexican Ry 20 Drawbridge at Salina Cru2 36 Electric cranes at Salina Cruz 36 Oil derrick, Tampico 40 Striking oil 40 Mexican dwelliiigs, Tampico 48 American dwellings, Tampico 48 Schoolhouse established by oil company ... 56 Railway station, San Luis Potosi 56 Falls of Juanacatlan 70 Primitive method of farming 102 Ox cart brings freight to railroad .... 102 Mahogany logs for export 112 Chocolate pods ready for shelling .... 112 Busy street in Mexico City 122 Modern residence in Mexico City 128 "Jitneys" in Mexico City 134 Modern residence in Mexico City 144 Coffee drying 164 Grading coffee 164 Post Office in Mexico City 262 INDUSTRIAL MEXICO INDUSTRIAL MEXICO CHAPTER I GOVEENMENX RAILWAYS Laredo, Texas, to Mexico City. Conditions in the capital. Shortage of equipment. Growth of rail- ways. Trip through the danger zone. Southern lines. Equipment in service. It is an unfortunate fact that the principal items of news from Mexico are reports of the activities of Villistass, Zapatistas, and Felicistas and of other rebels and bandits who infest cer- tain portions of Mexico, and that the average American is convinced that Mexico is an indus- trial, physical, political and financial ruin. That this is far from the truth was strikingly emphasized to me on my trip through Mexico in April and May, 1919. When I was invited to make a trip over the railway lines of Mexico under government con- trol, I gladly availed myself of the opportunity to obtain at first hand facts and figures regard- ing transportation conditions. Leaving New York on April 8, we reached Laredo, Texas, on 2 INDUSTRIAL MEXICO the morning of April 11. Here we laid over for a day. The Pullman Company will not at present allow any of its cars to go into Mexico. So on the morning of- April 12, we crossed the river in an automobile to Nuevo Laredo and boarded the train of the National Railways of Mexico. Our Pullman was a duplicate of the one we had travelled in from San Antonio to Laredo, and we begai;i our journey to the Mexican capital at 11 A. M. through a country which differed but little from that on the American side, for this stretch of territory is one of the few in the . Mexican republic that does not show mountains against the skyline. The line traversed the deserts of the great plateau and passed through hundreds of miles of dry and treeless plains. En route we passed many freight cars in bad order, with holes roughly patched with pieces of wood or tin, and at Monterey, which we reached in the late afternoon, we saw thirty loco- motive frames standing within the steel skeleton of what was apparently once a r,epair shop. Our military guard of forty soldiers, which we had taken on at Nuevo Laredo, was changed here for a fresh set. These travelled with us as far as San Luis Potosi, and here the guard was again changed for the run to the capital. GOVERNMENT RAILWAYS 3 The journey by rail from Laredo to Mexico City was made with no other delay than that oc- casioned by locomotive troubles on steep grades, requiring in consequence a few more hours than in the old days of almost clock-like precision of operation, when the roads were in perfect condi- tion and rolling stock was abundant. The arable land in the northern portion of the re- public, confined to narrow limits at best, is either under cultivation or being put into con- dition for production, and as the central por- tion of the plateau was reached, and the fertile valleys of San Luis Potosi, Queretaro, Guana- juato, and other states were traversed, a scene of agricultural activity was observed. Piles of ore at various stations indicated that mining is active. The railway from Laredo to Mexico City was originally a narrow gauge line, built under American auspices. It was opened for traffic in November, 1888, and the widening to standard gauge was completed in 1903. The length of the main line to the capital is 803 miles, and it is the shortest route between the frontier and the capital. On the journey the train crosses the states of Tamaulipas, Nuevo Leon, Coahuila, San Luis Potosi, Guanajuato, Queretaro, Hi- dalgo, and penetrates the state of Mexico. 4 INDUSTRIAL MEXICO Many stations and a great deal of rolling stock were destroyed on this line during the revolu- tion, but the government has rebuilt tracks, bridges and stations,, has repaired and pur- chased rolling stock, and is still repairing and purchasing more as the income warrants. The heavy expenses have been met with no other source of revenue than the ordinary business of the line, with the necessity of carrying mili- tary guards on all trains at heavy cost. Mexico City in April and May, 1919 We arrived at Mexico City at two o'clock in the morning of April 14, 1919, at the Colonia Station, and found the station plaza crowded with automobiles and two-horse carriages wait- ing to carry passengers, to their homes or hotels. A "cargador" seized our baggage, we engaged a machine, and in a few minutes from the time we stepped off the train we were spinning along the broad, well-lighted and scrupulously clean Paseo de la Reforma — a magnificent boulevard which runs from the entrance to Chapultepec Park to Avenida Juarez. Ten minutes later we were registered at the Hotel Regis and taken up in the elevator to our floor by a smiling Indian. The next morning GOVERNMENT RAILWAYS 5 we hired a seven-passenger car at a cost of five pesos ($2.50) an hour to see the city. In place of the dead, dirty and unsafe city about which we were solemnly warned before leaving New York, we found a metropolis of 900,000 people, with well-paved, clean streets', beautiful public and private buildings, with a system of trolley cars equal to those found in any American city — a city splendidly lighted at night, with traffic regulations which were enforced, with a good police system and a first-class fire department. Regarding the latter, one of the largest fire stations was opposite our hotel, and on May 3 there was a review of the fire department, and all their equipment was on parade. They have what is apparently the latest design of motor- ized engines, motor trucks for ladders, nets, and blankets, and they also have one feature which I have never seen in an American fire depart- ment — men mounted on bicycles carrying "first- aid" packages on their backs and with the Red Cross on their sleeves. These men attend fires and have sufficient knowledge to take care of minor cases of burns or injury. In the crowded avenues in the business sec- tions the "move on" of the policeman is a fa- miliar sound. At crossroads traffic policemen have iron posts identical with those at Fifth 6 INDUSTEIAL MEXICO Avenue and Forty-second Street, New York, with the same handle to turn the sign to "Ade- lante" or "Alto"— "Go ahead" or "Stop." Along one side of the beautiful little park called the Alameda, Indians in tents or with portable tables sell candied fruits, pottery, bas- kets, blankets, toys, tortillas, drawn lace, dec- orated leather, and a thousand other things. The custom of selling in the streets in this man- ner is typical of all Mexico — and has changed little since the days of Cortes. In addition to trolley cars reaching every section of the city and suburbs, there are thou- sands of Fords and two-horse carriages, as well as innumerable motor jitneys, known as "cami- ones," which carry passengers for ten centavos (five cents) for short trips. Eiding in one of the trolley cars in the business district near the Cathedral, where strap-hanging is by no means unusual, I was somewhat surprised to read the following notice pasted on one of the windows : ' ' Gentlemen : When you see a lady stand- ing on her feet, you will not find it possible to remain sitting with tranquillity. Your education will forbid you to do so. " General Manager of the Railways. ' ' Restaurants, hotels, theatres and moving- GOVEENMENT RAILWAYS 7 picture houses are all open and doing a thriv- ing business, and there is every evidence of activity in all the stores. Department stores such as the Palacio de Hierro and the Centro Mercantil were well filled. The American and British clubs entertained goodly numbers at luncheon and dinner. Smokers are held fre- quently at both clubs. The Thieves' Market is still selling "antiques" and "Aztec relics" to unsuspecting visitors, and the vendors of scrapes still haunt the hotels. The only evidence of rebel activities during our stay in the capital occurred on Labour Day, the fifth of May. A celebration had been planned at Chapultepec Castle, with a fine elec- trical display. About 8 p. m. all the electric lights in the city went out, and it was stated that the Zapatistas had shot down the power transmission wires which carry the current from a central plant situated many miles out, and which supplies light and power to the capital and other smaller cities near by. We had to use candles for three hours, by which time the auxiliary plant in the city was put in opera- tion, and everything was. again normal. 8 INDUSTEIAL MEXICO Mexico's Shortage of Railway Equipment The day following my arrival in Mexico City I began an investigation at the ofl&ces of the Mexican Government Eailway Administration with the object of ascertaining the extent of the deterioration of the physical equipment of the railways under government control. At the end of three weeks I was able to construct a table showing the shrinkage in the railway equipment of Mexico since 1913, as the result of revolutions and the lack of material with which to repair rolling stock. This table is given below : SHRINKAGE IN MEXICAN EAILWAY EQUIPMENT Standard gauge box cars Narrow gauge box cars Number destroyed Metric or condemned tons since 1913 ■ 13.6 41 18.2 67 22.7 62 27.2 1,673 . 36.3 1,630 ' 20.0 254 25.0 204 27.2 16 10.0 21 20.0 270 12.0 86 20.0 27 GOVEENMENT EAILWAYS standard gauge cattle cars Narrow gauge cattle cars Standard gauge gondolas Narrow gauge gondolas Standard gauge hopper cars Standard gauge flat cars Narrow gauge flat cars . . . Standard gauge coke cars . Standard gauge tank cars Narrow gauge tank cars . Standard gauge cabooses . . destroyed Metric or condemned tons since 191.3 18.2 11 22.7 4 27.2 399 36.3 309 20.0 45 10.0 11 27.2 5 12.0 13 22.7 23 27.2 407 36.3 592 20.0 22 10.0 3 25.0 44 36.3 20 45.4 151 13.6 12 22.7 25 27.2 176 36.3 502 25.0 124 22.0 65 12.0 24 22.7 8 27.2 5 27.2 ■ 25 36.3 106 45.4 95 20.0 2 25.0 9 25.0 16 13.6 82 18.2 15 22.7 61 10 INDUSTEIAL MEXICO Narrow gauge cabooses Standard gauge ballast ears Metric tons 11.5 10.0 12.0 13.6 18.2 36.3 45.4 Standard gauge passenger cars, combina- tion first and second class Narrow gauge passenger cars, .combina- tion first and second class Standard gauge passenger cars, second class Narrow gauge passenger cars, second class Standard gauge combination, baggage, mail and express Narrow gauge combination, baggage, mail and express Number destroyed or condemned since 1913 11 28 5 35 34 18 8 22 12 55 44 38 19 Merely to bring the Mexican railways back to the state of efficiency existing under the Amer- ican operating officials prior to the revolution, it will be necessary to replace all the rolling stock mentioned above. In addition, it is esti- mated that there will be needed 87,500 tons of rails, accessories and supplies. Since 1910 rev- olutions have resulted in the destruction of over 10,000 freight cars. At the present moment on the lines north of Mexico City there are 5,000 freight cars laid up awaiting material with GOVERNMENT RAILWAYS 11 whicli to repair them, as well as 400 locomo- tives and 225 tank cars. In view of this situation, large purchases of supplies must be made within the next twelve months to keep the railways running. Pur- chases are being made constantly by the New York oflSce of the Mexican Government Railway Administration, which has a bank credit of about $250,000 a month for this purpose. Growth of Railways It may be well here to give a brief review of the development of Mexican railways prior to the Carranza regime. Railway construction in Mexico started in 1854, when a line of ten miles was placed in operation between Vera Cruz and Tejeria. This line was gradually extended to the capital, which was reached in 1873. From 1877 to 1882 Mexico -built more lines of railroad than any other Latin-American country, the average yearly construction during that period being 428 miles. In 1905 the railway mileage of Mexico amounted to 10,557, and in 1910 it was 15,260. There has been very little new mileage built since that date. Most of these railways have received subsidies from the Mexican Gov- ernment ranging from $6,000 to $10,000 per 12 INDUSTRIAL MEXICO kilometre, according to the diflBculty of the work. In 1903 the Mexican minister of finance, Li- mantour, purchased $5,000,000 of 4% per cent, second debenture stock of the Interooeanic Rail- way. This purchase led soon afterwards to a further investment by the Mexican Government in railway stock, this time with the express ob- ject of exerting its interests both on the policy and routine of the National Railroad Company, the stock of which was acquired by the govern- ment. Limantour visited New York and Eu- rope in 1903, and while in the former city con- cluded with Speyer & Co. an arrangement whereby the Mexican Government became the owner of a block of shares of the National Rail- way which gave it a preponderating influence. In 1908 the National Railways of Mexico was incorporated in the United States to take over and unite the properties of the National Rail- road of Mexico and the Mexican Central. The latter system, which thus became part of the National system, was incorporated in Massa- chusetts in 1880. The Mexican Government of- fered a subsidy of $15,200 a mile, and the right was granted to import all materials for construc- tion, repair and operation free of duty for fif- teen years, with the further right of exemption GOVERNMENT RAILWAYS 13 from taxation for fifty years, dating from the completion of the line. The main line was built from Mexico City to Ciudad Juarez, 1,224 kilometres, branches and subsidiary lines bringing the total mileage up to 3,426 kilometres. The Central claimed that there were but four cities in the whole republic possessing anything over 5,000 inhabitants which were not served by one or other of its systems, main line branches, divisions or exten- sions. The largest and most important places outside of Mexico City itself which this railway serves are: Guadalajara, 125,000 inhabitants; Leon, with 70,000; Aguascalientes and Zacate- cas, each with 40,000; Guanajuato and Quere- taro, each with 45,000, and numerous other towns with populations ranging from 35,000 down to 1,000. This railway serves the most fertile and pro- ductive portion of Mexico, carrying a great min- eral traffic, and passing through the enormously valuable silver belt, which formerly yielded one- third of the entire silver production of the world. It reaches manufacturing districts such as Jimenez, the cotton producing district of Lerdo, Torreon, where there are cotton mills ; Aguascalientes, with woollen mills, silver and copper smelter.s, and also the location of the 14 INDUSTRIAL MEXICO largest railway machine shops, and San Luis Potosi, with its population of about 60,000. The International Eailroad, now also a part of the National system, was started in 1882 by that great American railroad pioneer, Collis P. Huntington at Ciudad Porfirio Diaz, and in six years it had reached Torreon. The next exten- sion was to Durango, centre of a rich mineral district, which was reached in 1902. Hunting- ton surveyed the line from Durango to the Pa- cific port of Mazatlan, but it was never finished. The Mexican Government has at present under consideration the completion of this line. Eighty miles have already been built west of Durango, but the remainder is in the mountain- ous region, where some twenty tunnels of vari- ous lengths and thirty large bridges will be required. It is estimated that the cost of the extension will be about $15,000,000, but the ex- penditure will be warranted by the opening of a rich agricultural, mining, and timber region. The International at present serves the rich coal fields of Coahuila, and furnishes the outlet for the coal and coke of the famous San Esperanza mines. Two-thirds of the revenue of the mines is derived from its mineral traffic. On these northern lines, all standard gauge, trains are being run without interruption except GOVERNMENT RAILWAYS 15 in a few districts, notably the line from Chihua- hua to Ciudad Juarez, where the Villistas are operating. At the time I was in Mexico (April and May) trains between Monterey and Mata- moras, Monterey and Tampico, and Monterey and Torreon, were being operated without in- terruption, although a train was blown up by bandits between Monterey and Tampico, and traffic suspended for one day on April 11. Freight and passenger traffic has been aug- mented to a large extent. From Saltillo to Pie- dras Negras the coal traffic has increased greatly, while passenger traffic is large and reg- ular. The line from Tampico to San Luis Po- tosi, which had been temporarily interrupted, had been restored to operation. From this city to Laredo traffic is normal and has been for an extended period. The lines south of Mexico City under govern- ment control are : The Mexican Railway from the capital to Vera Cruz; the Vera Cruz and Isthmus; the Tehuantepec National, the Alva- rado Railway, the Pan American, the Inter- oceanic, the Mexican Southern, and several smaller lines. The most important of these is the Mexican Railway, the first line to put Mexico in touch with the outside world, length 264 miles. 16 INDUSTEIAL MEXICO The Mexican Railway is operated today un- der conditions absolutely unique in railroading. Running through the rebel-infested state of Vera Cruz, it is protected throughout its length by a syst'fem of forts, or blockhouses. There are 70 of these blockhouses, each connected by telephone, one about every four miles, built close to the track, on raised ground, with watch towers, manned with Carranza soldiers. Ditches are excavated around each fort, and these ditches are protected by barbed wire en- tanglements strung at a reasonable distance from the trenches and around them, A Trip Through the Danger Zone OAving to rebel activities no trains are oper- ated on this line at night. I boarded the train at the Buenavista station, Mexico City, on the night of May 7, and we pulled out at 5 a. m. with a military guard and made an uneventful run across the central plateau to Esperanza. On leaving this station we soon struck the most perilous part of the run through the mountains, a mile and a half above sea level, from Esper- anza to Maltrata. The line is almost unsur- passed from a scenic point of view, ascending from the valley of Mexico to the summit of the z o w < Z ffi O -< H ^ >- a W H g ^^S W o <^ K S o C " w ^ X M a w w P Z Q O W 7 w £; ?^ & o o H 2 u <; a m H P e „ o <; z M so W H J .^ '-' Q K P H S U Z H 9 < < Bi ?^ CQ P P M H O ^ o r;? w z ^ w s [E seve: REBEL ■HEY AR w > w p o S 2 '^ m ^ O < feS^ w z ONE LWAY A CRI o rn - W «3: 2 << w ta ci > H ■n 5 EH GOVERNMENT RAILWAYS 17 Sierra Madre, reaching its highest point at Aco- cotla, near San Marcos, an elevation of 8,310 feet. At one point, at Alta Luz, the train is 2,919 feet higher than the topmost point of Mount Washington, and we looked down upon the valley spread out like a chessboard thou- sands of feet below, as the train plunged around dizzy barrancas, over spidery bridges spanning profound caiions, or along the curving roadbed cut in the solid rock of the mountain side. All the way down the mountains we could trace the road, its serpentine trail drawn in and out of the valley and along the ridges, ever and anon doubling upon itself, but ever descending. At the Maltrata Incline the scenery is indescrib- able, the eye dominating a thousand square miles of mountain ridge and tropical valley, and from the car window it looks for all the world like the view from an aeroplane. One 's mind shud- ders at the possibilities of a stick of dynamite carefully placed by a bandit at this point. A few days before at Las Vegas, in these same mountains, on the narrow gauge Interoceanic Railway, a train was dynamited by Felicistas and a number of persons killed. Reaching Orizaba, we notice for a mile or so along the line great piles of wrecked railway equipment, the twisted frames of cars of every 18 INDUSTRIAL MEXICO description, engine frames, wheels by the hun- dreds with and without trucks, eloquent testi- mony to past revolutionary activity. Here we were joined by what they call the "explorers' train" to protect us from rebel attacks through the heavily wooded sections between this point and Vera Cruz. This train consists of a loco- motive and four cars filled with soldiers, with soldiers also riding on the car roofs, fully armed, and ready for instant action. Our train fol- lowed behind, with another carload of soldiers on the rear. We soon reach the most dangerous pass on the Hue, going through a series of tun- nels and then creeping gingerly across the Met- lac Bridge, 350 feet long, built upon a curve of 325 feet radius, on a 3 per cent, grade, 92 feet above the river. Eight cast and wrought iron pillars on masonry bases uphold it, and when a long train is winding across it the horseshoe effect is very striking. Shortly after this we reached Cordoba, and from here to the coast the run was through level country. Vera Cruz be- ing reached at 6 :15 p. m., the journey from the capital having taken a little over thirteen hours. Other Southern Lines The Mexican Southern Railway, also operated by the government, runs from the city of Puebla GOVERNMENT RAILWAYS 19 to the city of Oaxaca, and was built with British capital. Two years were spent in completing the line, which passes through an exceedingly difficult country. The track parallels the In- teroceanic line as far as Amozoc. The Inter- oceanic Railway was incorporated in 1888 by a special charter, the idea being to construct a line from Vera Cruz on the Gulf to Acapulco on the Pacific, but the line, which is narrow gauge, is still far short of its ultimate destination. The Tehuantepee National, recently pur- chased from the Pearsons of London by the Mexican Government, was completed in 1907. The total length of the line, which crosses the Isthmus of Tehuantepee from the Gulf of Mex- ico to the Pacific, is 190 miles. There is also a small branch line. Fine harbours have been constructed at the ports of Salina Cruz on the Pacific and Puerto Mexico on the Atlantic. Large warehouses have been erected for the storage of freight. At both places trains are run up to the ship 's side, where there are elec- tric cranes for loading and unloading. There is a fine dry dock at Salina Cruz. A large amount of traffic which formerly went around Cape Horn or across the Panama Rail- way now goes via Tehuantepee. This route is 1,200 miles shorter between New York and San 20 INDUSTRIAL MEXICO Francisco than the Panama Canal. Not only is it a shorter route to the Pacific ports of the United States, but to the Orient and Australia. Sugar cargoes, for instance, can be carried from Hawaii to New York via Tehuantepec, a dis- tance of 5,305 miles, instead of carrying them around Cape Horn, over 12,000 miles. In the rebuilding of the Tehuantepec Railway and the improvement of the two ports $65,000,000 has already been speyit. Equipment in Service The following equipment is at present in use on the lines under government control : Standard Narrow Railways gauge gauge 'Locomotives . . 767 295 National Railways . . .^ Passenger cars 497 258 Freight cars . . . 11,062 2,778 Locomotives . . 47 National Tehuantepec. - Passenger cars 12 Freight cars .. . 1,008 .... 'Locomotives . . 16 Vera Cruz & Isthmus. - Passenger cars 10 Freight cars . . 193 .... Locomotives . . 7 Pan American - Passenger car 1 Freight cars .. 40 Xocomotives . . 7 Vera Cruz to Alvarado- Passenger car 1 Freight cars . . .... 40 ■ 'iSSJFi ■Ss3»«"i <; ttJ x; H ra Hi W O 2 W m §^ P-, X W a 2" "^ J < S OS Q O w m Z S " S " gauge gauge 64 11 58 13 569 105 158 • > • • 3,263 .... GOVEENMENT RAILWAYS 21 Railways f Locomotives . . Mexican Railway J Passenger cars [Freight cars . . Owned by shippers or ( Locomotives . . rented to shippers . . j Freight ears . . The Central Eailway was among the first in Mexico to adopt oil burning engines, and today practically all the Mexican railways use them. There are a large number of storage tanks, and spepial oil tank cars are used for carrying pe- troleum from the wells to these tanks. The number of employes on the railways un- der government control in Mexico is 31,588, of which only sixty-nine are foreigners. Gross re- ceipts for the year ended June 30, 1918, of the government lines (8,119 miles), amounted to $29,240,485 United States currency, and the operating expenses were $19,151,808, net oper- ating income therefore being $10,088,677. CHAPTER n PRIVATE BAIIiWAYS AND STEAMSHIPS Southern Pacific of Mexico. Proposed new lines. DifQeult construction. Kansas City, Mexico and Orient. Private freight trains. Small American lines. Building a tropical railroad. Curiosities of Mexican railroading. Statistics. Mexico to Japan. New Orleans to Vera Cruz. New York to Tampico. Coastline and ports. The tenacity, enterprise and foresight of Harri- man resulted in the construction a few years ago of the Southern Pacific of Mexico, which owns approximately 1,000 miles of line in some of the most beautiful country on this continent. This line is the result of the consolidation into a single system in Mexico of the lines controlled by the Southern Pacific system of the United States. The Mexican concession dates from 1905, and carried a subvention of $10,058 United States currency per mile. This company has virtually absorbed what was hitherto called the Cananea, Yaqui River & Pacific, which had con- structed lines from Nogales and. Naco on the Pacific-Arizona border to Cananea, a copper- 22 PRIVATE RAILWAYS 23 producing centre in the state of Sonora, and down the west coast of Mexico on the Gulf of California from the port of Guaymas to Mazat- lan. continuing to Tepic, from which point it is eventually to go to Guadalajara and Mexico City. The company suffered considerably between 1910 and 1913, the traflBc loss for this period be- ing estimated at $3,000,000, and the cost of main- taining the property during the same period was $510,000 in excess of the revenue collected. The road in its progress southward crosses the wealthy regions of the Mayo and Yaqui rivers, which produce the best garbanza (chick peas) in the world. It passes Navajoa, the centre for this product, and then touches San Bias, in the state of Sinaloa, "where it connects with the Kansas City, Mexico and Orient. At Manza- nillo it connects with the National Railways of Mexico. The Southern Pacific of Mexico runs tri- weekly trains from Nogales to Naco via Ca- nanea, 120 miles, but the property of the rail- road in this section has greatly deteriorated, owing to the fact that it has been compelled on several occasions to withdraw all trains and practically abandon the roadbed. All the bridges have been destroyed, and all rolling 24 INDUSTRIAL MEXICO stock, roadbed, terminals and buildings will have to be renewed at an early date. At one point on this line, between San Bias and Culiacan, H. J. Temple, the general superintendent, re- built a bridge nine times. Every time the bandits destroyed it, Temple rebuilt it. A pile driver outfit was maintained at the bridge all the time, and in one month the bridge was re- built five times. The Southern Pacific of Mex- ico is compelled to operate armoured cars on all trains. A glance at a railway map will show the small portion of the route between Tepic and Guadalajara which is still to be completed. The intervening distance is only a few miles, but it is in the diflBcult Sierra Madre country, requir- ing a number of tunnels — one of them nearly three miles in length — and much heavy grad- ing. Representatives of the Southern Pacific are now in the field arranging for the early com- pletion of the line. When this is done the Southern Pacific will have a direct connection between its great system in the United States and the entire west coast of Mexico — a region immensely wealthy in agricultural and mineral products. PEIVATE RAILWAYS 25 Difficulties of Construction The diflBculties which will have to be over- come by the American engineers in completing this short stretch between Tepic and Guadala- jara are graphically illustrated by the descrip- tion of the survey made under exactly similar circumstances of the Canon de Tamasopo on the Mexican Central by Max E. Schmidt, an American engineer. "This canon is eighteen miles long, with perpendicular cliffs many hun- dred feet high on both sides. "When the first surveys were made, the canon was devoid of roads or trails. The sun hardly ever penetrated the rockbed where the engineers camped, and where a sudden rain in a few hours might create a torrent that would fill the bottom of the canon from side to side many feet deep, and carry away every vestige of the camp out- fit and survey. At night, the noise of the rocks becoming detached from the cliffs above and falling into the canon made sleep a succession of nightmares. When the actual location was made it was found that, in order to obtain proper grades, the road would have to inter- sect the cliffs at about half their heights. Diffi- culties then began in earnest. On many days not over 100 feet could be staked. All camp 26 INDUSTRIAL MEXICO comforts had to be abandoned and night would find the engineers camping on the cliffs, near the last stake, swinging their hammocks over rocks and precipices and securing what little rest they could. The roadbed as now finished^ is nearly .all carved out of the solid rock. The total track curvature is 12,248 degrees, and in the aggregate only about one-fifth of the dis- tance is on tangents." Another American Line A gigantic monument to the pluck and re- sourcefulness of American engineers is the Kansas City, Mexico & Orient, running from Kansas City to the Bay of Topolobampo on the Pacific Coast of Mexico, a total of 1,451 miles. It was promoted by Arthur E. Stilwell, who carried large parties of prospective stockhold- ers from the western states, and in this way sold enough stock to carry on the construction work. The company was incorporated in 1900 under the laws of Kansas. Two sections are still un- der construction — one between Alpine, Texas, and the Rio Grande, eighty-one miles, and the other between Sanchez, in the state of Chihua- hua, and Los Hornillos, in Sinaloa, 198 miles. This line also taps large agricultural and min- PRIVATE RAILWAYS 27 ing districts, it being estimated that there are about 500 mines and prospects on the line, as well as important haciendas producing sugar, cattle, grain, timber and fruit. Owing to bandit activities, service is at present irregular on the stretch of line from the Rio Grande to Sanchez, 287 miles. The construction of this line is all first class, rails of seventy-five pounds weight, ties of Cali- fornia redwood, tarred, bridges well piled and provided with safe approaches and abutments. On the first hundred kilometres of the line, start- ing from the Pacific terminus at Topolobampo, there is but one bridge of any importance, namely, that crossing the Fuerte River, compris- ing three truss spans, each measuring 300 feet in length. Several smaller bridges are from 15 to 50 feet in length. On the second division, from Chihuahua east, however, when the Sierra is reached, the country becomes difficult to ne- gotiate. In this long section tunnelling has been both expensive and difficult, the longest of the excavations being 1,520 feet, while there are two others which measure 810 feet. East of Chihuahua there is a bridge across the Chu- viscar River near Aldama, consisting of ten spans of fifty feet deck girders on concrete piers and abutments. Further on, crossing the Con- 28 INDUSTEIAL MEXICO chos Eiver, there is a steel girder bridge which is comprised of seventeen spans of fifty feet deck girders. The length of the main line in Mexico, from the Eio Grande to Topolobampo, is 633 miles, which distance includes a portion of the Chihua- hua & Pacific Railway, from Tabalaopa to Mi- naca, 120 miles, operated under lease. The terminus of the line at the bay of Topolobampo is a magnificent port, completely mountain- locked, measuring about seven square miles in area, with a depth over the bar at the entrance at low tide of about twenty-two feet. Privately Operated Trains A large part of the freight in Northern Mex- ico is today handled in privately operated trains, of which there are about thirty in service, American mining companies have agreed to re- build a part of the destroyed cars on condition that such cars are to be used exclusively by thesm for a period of two years, after which they revert to the regular equipment of the serv- ice. From the American border to San Luis Potosi, 475 miles, on the government railways, shippers are dependent on private trains for quick service, freight being delivered in about PRIVATE RAILWAYS 29 ten days, at rates 50 per cent, higher than the regular government rate. As freight is not re- ceived on private trains in less than carload lots, shippers of smaller quantities who require regular quick service must ship by express or pay insurance. There are special express trains leaving Nuevo Laredo on the Rio Grande for Mexican points twice a week. An effort is being made at the present time to bring about an agreement with the United States Railroad Administration for the through billing of freight from points in the United States and Mexico, and for the regular inter- change of cars. Through billing has been dis- continued since 1915. American owned freight cars are, however, going across the border into Mexico under bond furnished by the shipper, and bond is released as soon as the car is returned to the United States. There are at present about 500 American owned freight cars in shops and in service in Mexico. Extension of Lines When I left Mexico City on May 7 the extra session of the Mexican Congress had completed its organization, and was starting to work on the big questions which it is now compelled to 30 INDUSTEIAL MEXICO deal with. One of the most important of these is the extension of the railroads of the country, as recommended by President Carranza, and the purchase by the government of all or a ma- jority of the stock of the United Eailways of Yucatan. This company was incorporated un- der the laws of Mexico in 1902, and is a system formed through the consolidation of lines for- merly independent and then owned by henequen (hemp) planters of the peninsula of Yucatan. There are four divisions : the Northern, between Merida, the capital of Yucatan, and Progreso, its seaport, and between Merida and Izamal, all standard gauge; the Eastern, between Merida and Valladolid, with two branches, all narrow gauge; the Western, connecting Merida with Campeche, capital of the state of the same name, and two branches, all narrow gauge; and the^ Southern, between Merida and Peto, with one branch, narrow gauge. Since 1914 the Yucatan railways have been operated by the local government of the State of Yucatan. The share capital is 23,000,000 pesos ($16,500,000), in addition to which there is an issue of $4,125,000 first mortgage 5 per cent, redeemable gold bonds issued in London. At the time of my visit to Yucatan on May 12 there were 500 miles of railway operating on PRIVATE EAILWAYS 31 schedule time. Track was in good condition, but rolling stock was badly in need of repair. Three new lines are proposed for Yucatan. The first would link the Yucatan system with the territory of Quintana Roo, running through Peto, Yucatan, Bacalar and Santa Cruz. Sur- veys for this line were made under the rule of Porfirio Diaz. The second extension, also pro- posed by Diaz, would connect Santa Lucrecia, in Vera Cruz, to Campeche, connecting with the National Railway of Tehuantepec across the isthmus. The third proposed line will run from some point on the Southern Pacific, between Magdalena and Hermosillo, to Ensenada, the capital of Lower California. The completion of these lines will enable troops to be trans- ported by rail from any part of the country to Lower California without entering the United States. The American Smelting and Refining Com- pany is also planning the construction of a new line to be operated in connection with its ex- tensive mines and smelters in the states of Chi- huahua and Durango, and will expend some $5,000,000. 32 INDUSTEIAL MEXICO Smaller American Lines Another American owned line is the Mexican Northern, with offices at 82 Beaver Street, New York, which has a total track of seventy-eight miles and runs from Escalon, in Chihuahua, to Sierra Mojada, connecting that region with the Mexican Central. This line is now under the control of the Mexican Government. The Mex- ico Northwestern Railway, incorporated in 1909 under the laws of Canada, with offices at 115 Broadway, New York, was formed for the pur- pose of providing northern Mexico with rail- road facilities. It has 476 miles, and is still privately operated. It owns the following lines: The Chihuahua & Pacific (incorporated in 1897 in New Jersey), the Sierra Madre & Pa- cific, a lumber line, and the Rio Grande Sierra Madre & Pacific, which owned several lines in Sonora and Chihuahua — all rich in agricultural, mineral, and forestry resources. The Parral & Durango Railway was incor- porated in Colorado in 1898, and runs from Minas Nuevas, Chihuahua, to Paraje Seco, Du- rango, fifty-nine miles, with a short branch line to Parral. The head offices of this line are at Pittsburgh. The Potosi & Rio Verde, narrow gauge, is another American enterprise, with of- PEIVATE EAILWAYS 33 fices at 82 Beaver Street, New York. This runs from San Luis Potosi to Ahuacatal, thirty-eight miles, and is at present under the control of the Mexican Government. Building a Tropical Railroad It was a Kansas City man, Dennis W, Hed- rick, who built the bridges on a line which crosses more rivers and streams than any other railway on the North American continent. This was the Vera Cruz & Pacific Line, completed in 1903, and now part of the Mexican Government railways, extending from Vera Cruz to Santa Lucrecia, a station on the National Tehuantepec, midway between the Gulf of Mexico and the Pacific. The distance was only 242 miles, but the road crosses six large rivers and numerous streams, which necessitated the building of 300 steel bridges. The largest of these crosses the Papaloapan River at El Hule, the superstruc- ture consisting of five spans, each 170 feet in length, a draw span of 225 feet and two steel approaches of 245 feet each, making a total length of nearly one-third of a mile, and con- suming 1,250 tons of steel. 34 INDUSTRIAL MEXICO Curiosities of Mexican Railroading There are a number of reasons, other than those relating to natural obstacles, which make railroad building in Mexico expensive. The peculiarities of the Mexican peon is one of these. During the construction of a line in the South thousands of wheelbarrows which were imported for grading purposes had to be thrown away be- cause the peons would not use them unless per- mitted to take the wheels off and carry the bod- ies on their backs. Government requirements for the construc- tion of new railways have also in the past caused large unnecessary expenditures. When I was travelling on the Mexican Railway from Mexico City to Vera Cruz on May 8 I was informed that the cost of the road had averaged $136,000 per mile — probably the most expensive railroad in the world — and that while only 264 miles long it had taken twenty years to build the road. A little inquiry soon cleared up the mystery. The government in granting the concession had insisted that the railroad be constructed from both terminals simultaneously. Notwithstand- ing the vehement protests of the English con- tractors, they were compelled to transport rails, parts of locomotives and other machinery on PRIVATE RAILWAYS 35 mule-back or carts over 250 miles inland, over rugged mountains, some of tliem over 8,000 feet high, and then the track had to be laid back- wards to meet the section which was working up from the coast. Some Statistics That the freight and passenger traffic of Mex- ico is growing, despite bandit and rebel activi- ties, is evidenced by the statistics of transpor- tation of commodities on the railways under government control — representing only 8,119 miles — for the year ended June 30, 1918. Here are the figures, in metric tons : Forestry pro- ducts, 393,968 tons; agricultural products, 1,236,719 tons; animals and animal products, 216,443 tons; inorganic products, such as lime, cement, asphalt, coal and coke, oil, minerals, etc., 1,935,105 tons; general merchandise, 372,- 475 tons. For a country containing a popula- tion of only 15,000,000, of which a very large percentage are Indians and half-breeds living under the most extreme primitive conditions, a country which, moreover, has been torn up by nine years of revolutions, these figures are re- markable. 36 INDUSTEIAL MEXICO Shipping Facilities Prior to the European war, the Japanese ves- sels that plied between Japan and the United States and Mexico touched only at Pacific coast ports. A new service has now been inaugur- ated, the vessels going directly from Japan to San Francisco, thence to Mexican ports and then to Panama. Passing through the canal, they will then call at Vera Cruz and Tampico and afterwards proceed to New York, making the return trip in the order named. Arrangements have been made for the estab- lishment of steamship traffic between Victoria, B. C, and ports on the west coast of Mexico. At present it is necessary to transship all freight for Mexican ports at San Francisco, but assurance has been given by the company that if sufficient business develops to warrant it, a direct steamer will be put on the route, which will eliminate the delay at the place named. The cargoes from Vancouver are expected to consist of paper pulp, canned salmon, lumber, coal, etc. On the other hand there is a demand in British Columbia for numerous Mexican products, such as coffee, tobacco, rubber, vege- table oils, fibres, hard woods, fresh and dried bananas, and other tropical products. DRAWBRIDGE AT SALINA CRUZ ELECTRIC CRANES AT SALINA CRUZ PEIVATE KAILWAYS 37 Within a short time the steamship service which formerly existed between Guaymas and Salina Cruz will be renewed. Four vessels are now being overhauled for the restoration of this service, which will be most important to the Pacific littoral and which will emphasize the value of the Tehuantepec Eailway as an inter- oceanic system. The steamship company has sent a financial representative to the Central American countries to solicit business for the new line. The National Navigation Company of the Pacific has resumed the operation of its ves- sels between various points on the West Coast. Guaymas and Manzanillo are the terminal points and calls will be made at Santa Eosalia, Las Penas, La Paz, Mazatlan, San Bias, etc. The Mexican Fruit Steamship Co. has re- sumed the operation of its vessels between American ports and those on the eastern coast of Mexico, including Matamoros, Tampico, Vera Cruz, Puerto Mexico, Frontera and Progreso. The operation of this line had been suspended because of the war, and as a consequence, the banana growers of certain portions of Mexico had been prevented from marketing their crops. There is now a regular steamship service be- tween New Orleans and Vera Cruz, and between 38 INDUSTRIAL MEXICO New York and Vera Cruz and Tampico, stop- ping en route at Havana and Progreso, Yuca- tan. Coast and Ports of Mexico Mexico has a coast line of 1,400 miles along the Mexican Gulf, 327 miles on the Caribbean Sea and no less than 4,574 miles on the Pacific Ocean, including the Gulf of California between the peninsula of Lower California and the Mex- ican mainland, measuring indentations. On the Gulf of Mexico the chief ports are: Matamoros, Tampico, Tuxpam, Vera Cruz, Puerto Mexico (Coatzacoalcos), Frontera, Cam- peche, and Progreso. On the Caribbean Sea there are two ports of entry: Ascension and Espiritu Santo, also Payo Obispo for government transports. On the Pacific side there are the ports of Guaymas, Topolobampo, Altata, Mazatlan, San Bias, Manzanillo, Acapulco, Puerto Angeles, Sa- lina Cruz, Tonala, and San Benito, on the main- land, and Ensenada and La Paz on the peninsula of Lower California. CHAPTER III OIL INDUSTRY Who's who. New developments. Submarine de- posits. Rentals. Evolution of industry. Location of fields. Varieties of fuel oil. Output of each company. Exporting companies. "Mines of liquid gold" some one has truly de- scribed the oil fields of Mexico, which in the year 1918 produced 63,828,326 barrels of petro- leum, each barrel containing forty-two gallons. Although oil was first exploited in Mexico as far back as 1857, the industry as we know it today really began in 1900, when E. L. Doheny and C. A. Canfield, both Americans, began work in the State of San Luis Potosi near the Vera Cruz boundary, at Ebano. In that year they purchased a large tract of land, and in the spring of 1901 built the first modern oil well drilling plant in Mexico. Drilling operations started on May 1 and on the 14th the Mexican Petroleum Company, the concern organized by Doheny and his associates, completed their first successful oil well. Other wells were drilled in rapid succession, a contract to sell oil to the 39 40 INDUSTRIAL MEXICO Mexican Central Railway was arranged, and in 1905 deliveries were being made to that railway at the rate of 6,000 barrels a day. Then Doheny and Canfield opened up the Casiano district, on which property they drilled the world's great- est producer, known as Casiano No. 7, the total production of which to September 11, 1917, amounted to 61,580,000 barrels, to which it has since added 600,000 barrels monthly. "Who's Who" in Mexican Oil The Mexican Petroleum Co., Ltd., and its sub- sidiaries (the Doheny interests) are at present the largest producers, and best equipped as re- gards camps and facilities for transportation and storage. Their product is sold mostly in bulk to American companies along the Gulf States, although a good trade is also done with Brazil. In recent years this company has un- dertaken to market its products in the United States, and has established distributing depots in New York and on the Mississippi River near New Orleans. The output of the Doheny organ- izations for last year was as follows : Huasteca Petroleum Co. (Mexican Petroleum Co., Ltd., of Delaware) produced 20,186,459 barrels in 1918, compared with 17,325,171 barrels. Its allied OIL DERRICK IN TAMPICO OILFIELD, HAUSTECA PETROLEUM COMPANY ■STRIKING OIL." CERRO AZUL WELL OF THE HUASTECA PETROLEUM COMPANY OIL INDUSTRY 41 company, the Mexican Petroleum Co. pf Cali- fornia, produced 1,-445,977 barrels, against 1,125,702 barrels. Next in importance to the Doheny organiza- tion is the Mexican Eagle Oil Co., Ltd. (El Aguila), of which Lord Cowdray is the princi- pal owner. This is the concern in which the Eoyal Dutch Shell has purchased a large inter- est. El Aguila produced 16,910,646 barrels in 1918, compared with 16,922,323 barrels in 1917. Several new companies have recently entered the field, including the Cia Mexicana de Petro- leo, La Libertad (Island Oil & Transport Cor- poration), and the Cortez Oil Corporation (Port Lobos Petroleum Corporation). The compan- ies with an output in excess of 500,000 barrels were as follows: Penn Mexican Fuel Oil Co., 6,854,081 barrels in 1918, against 4,129,297 in 1917; Freeport & Mexican Fuel Oil Corpora- tion (Sinclair Gulf Corporation), 4,119,654 bar- rels, against 4,076,982; East Coast Oil Co., 3,457,236 barrels, against 3,143,221; Cortez Oil Corporation, 2,161,757 barrels; Mexican Gulf Oil Co., 1,728,190 barrels; La Libertad, 1,550,- 869 barrels; Mexican Petroleum Co. of Cali- fornia, 1,445,977 barrels; Texas Co., 1,279,747 barrels, against 2,315,433; Cia Petroleo Tal Vez (Southern Oil & Transport Corporation), 1,152,- 42 INDUSTRIAL MEXICO 064 barrels, against 989,561; International Pe- troleum Co., 609,734 barrels, against 619,828; Tampascas Oil Co., 578,479 barrels, against 174,925; Panuco Boston Oil Co. (Atlantic Re- fining Co.), 531,511 barrels, against 828,067. At the present time there are 155 petroleum companies in operation in Mexico, though the actual production is confined to a few large companies. The potential daily production of Mexican oil fields on February 28, 1919, was 1,592,740 barrels, but owing to lack of transpor- tation facilities the actual production was only 174,872 barrels daily, or 10.98 per cent, of the potential production. There is no diflSculty in getting the oil from the wells to the coast, as they are located near shipping points, and all the big producers are provided with pipe lines, there being over five hundred miles of such lines in the comparatively limited area in which are included the greater number of the producing wells. Ocean transportation is the difficulty, and this is being met by the construction of oil carrying steamers as rapidly as possible. The number of wells drilling on February 28, 1919, was 114, and on the same date there were 299 productive wells. These figures compare with 141 wells drilling and 339 productive wells on December 31, 1917. OIL INDUSTRY 43 During the month of June, 1919, over 150 tank boats left the ports of Tampico, Tuxpam and Lobos carrying in the neighbourhood of eight million barrels of oil. The July, 1919, shipments were about ten millions of barrels. New Developments The Huasteea Company now has 361 kilome- tres of pipe line, the Aguila has 343 kilometres, the Mexican Gulf 100 kilometres, and the Oil Fields of Mexico 89 kilometres. New shipping stations have been completed during the past year, vessels lying off shore and receiving their cargoes of oil by means of submarine pipes. The Corona Company, a subsidiary of the Royal Dutch Shell, is constructing at Tampico what will be the largest and most modern re- fining plant in Mexico. The capacity of the re- finery will be from 5,000 to 6,000 barrels daily. Another company, a new one, is also planning an extensive refinery. During the past three months seventy new wells were commenced in the Tampico region, four of which opened up with large productions. The exportation of oil shows a constant and steady increase, the only obstacle to definite expansion being the lack of suflScient ships, though this is now being rem- 44 INDUSTRIAL MEXICO edied by the release of vessels that had been engaged in war activities. During the year 1918 there was received at New Orleans alone petroleum from Mexico of a value of some $40,000,000. The Mexican Government recently dispatched an engineer to make a study of the petroleum indications in the State of Colima. He has now reported that he has discovered petroleum in- dications of great richness in the vicinity of the Hacienda de Santa Eosalia, surface indi- cations of seepages, etc., covering many square miles of territory, while the geological forma- tions were similar to those of the developed pe- troleum regions elsewhere. Another Mexican government engineer re- ports the discovery of important deposits of pe- troleum near the port of Altata on the Gulf of California in the State of Sinaloa. Applications for concessions to exploit these discoveries are now being made. These new discoveries are on the same parallel of latitude with the de- posits on the coast of the Gulf of Mexico, and indicate the presence of oil right across the re- public. On one of the islands of the coast near Altata a natural geyser of petroleum has been discovered. Other deposits have been discovered in the OIL INDUSTRY 45 State of Chiapas, and the Mexican Government has appointed a conamission of experts to make a geological survey. The first discovery of a deposit of paraflBne on the American continent has been made re- cently in the State of Chihuahua, not far from the border. The bed has been traced for ten kilometres in extent, and analyses of samples show 93 per cent, of the pure mineral. Petro- leum with a paraflBne base has also been dis- covered in the same region. The greater por- tion of the oil produced in California, the south- western portions of the United States, and also in Mexico, has an asphalt base. It is that with a parafl&ne base that produces a good grade of illuminating fluid. Oil has also been discovered in the elevated region of the State of Durango, on the eastern slope of the Sierra Madre. The Lorena Petroleum Company has recently brought in a new well which produces upwards of 12,000 cubic metres of oil daily. A new well was also brought in at Panuco, Vera Cruz, hav- ing a capacity of 16,000 cubic metres daily, or about 100,000 barrels. The well spouted over 100 feet in the air and the surrounding land was flooded with petroleum before it could be controlled by the valves and pipe line provided for just such an emergency. A new weU with 46 INDUSTRIAL MEXICO a capacity of 30,000 barrels daily was reported to have been brought in recently at Tantoyucan, Vera Cruz. Submarine Oil Deposits Announcement has been made that the Mexi- can Government will issue a concession for the exploitation of the petroleum deposits that are known to exist beneath the waters of the Gulf of Mexico. Geological study and exploration have demonstrated the indication of large quan- tities of oil off the eastern coast, which will prove a great economical addition to the oil re- gions. It is claimed that the exploitation of submarine oil is cheaper than the sinking of wells on land. A contract has been made for the sale of 50,- 000,000 barrels of petroleum to an American company for use on railways in the United States. This is said to be an initial order. Papers filed in Mexico City reveal the organiza- tion of the Mexican-Belgian Petroleum Com- pany with a capital of $4,000,000 American money. The company is negotiating for a large area of petroleum lands in the northern portion of the State of Vera Cruz. One can readily un- derstand the eagerness of foreign investors to OIL INDUSTRY 47 engage in the petroleum industry in Mexico when the Aguila Company is paying 25 per cent, dividends and the Royal Dutch Shell is distrib- uting dividends ranging from 37 to 48 per cent. Rentals Paid for Oil Lands in Mexico Official figures regarding the amounts paid to owners of oil lands as rentals have been com- piled by the Secretary of Industry and Com- merce of Mexico, and show the following: Twenty-four companies pay no rent, owning their land in fee simple. Fifty-four companies pay an annual rental of less than five pesos ($2.50) per hectare (2^^ acres). These companies occupy nearly seven- eighths of the oil lands under operation. The total area rented by them is 3,325,490 acres, out of a total of 4,064,870 acres. On this they pay annual rentals amounting to $589,324 American money, or a little over 101^4 cents per acre. Twenty-two companies pay annual rentals of less than $10 per hectare upon 138,340 acres, amounting to $166,254 American money. One hundred and twenty-two companies pay more than $10 per hectare. They occupy 175,- 087 acres and pay a total annual rental of $2,443,457 American money. 48 INDUSTEIAL MEXICO The total area occupied by all the companies is 4,064,870 acres and the total annual rent is $3,449,033 American money. Several companies pay very high rentals, which serve to increase the average. One pays $4,166 American money per hectare, another $1,837, another $2,016, while several pay from $500 to $1,000. Exports of crude petroleum and refinery prod- ucts from Mexico in 1918 amounted to 7,677,278 metric tons, valued at $70,278,776 American money, compared with 6,426,036 tons valued at $26,838,063 American money, in 1917. The in- crease in value reflects the higher prices that were paid for Mexican oil. The United States share of the Mexican oil exports in 1918 was 73 per cent. Evolution of the Oil Industry In 1857 a group of individuals, mostly mer- chants, in the village of Macuspana, Tabasco, entered into an agreement that each should furnish "a hundred loads of cacao" with which to procure "sheets of forged iron" to be used in the making of receptacles for the storage of "illuminating oil" that flowed with the water from a spring near the village and which the natives used for illuminating purposes. MEXICAN DWELLINGS IN TAMPICO AMERICAN DWELLINGS IN TAMPICO OIL INDUSTRY 49 These merchants obtained within a short time great profits from the enterprise, and as they could not dispose of all the oil at the locality of its source, they visited for this purpose the neighbouring cities. Thus it can be seen that even if only as a beginning on a very small scale, oil was already being exploited in Mexico as far back as 1857. After a lapse of eight years, in 1865 a per- mit was granted by the Federal Spanish Gov- ernment to a Spaniard, Ildefonso Lopez, to ex- ploit the deposits of bituminous and oleous sub- stances at San Jose de las Eusias, State of Tamaulipas, a place not far from Soto de la Marina, in the eastern portion of the State named. The Spaniard, Lopez, dedicated himself al- most wholly to the exploitation of the "pitch" or asphaltum which abounds in those regions, and also, like his predecessors, the mineral oil that flowed spontaneously. In view of the good results obtained by him, a group of Mexican planters organized a com- pany which bore the name of "The Development Company of the Gulf of Mexico. ' ' Even if the constitution of this company indicated that the ostensible object of its activities was, among others, the extraction of coral from the shoals 50 INDUSTEIAL MEXICO near the coast of Sotavento, it really dedicated itself exclusively to the exploitation of the pe- troleum fields located near Furbero, Papantla, State of Vera Cruz. However, the financial ob- ject of this enterprise was never attained, in spite of the most rational and scientific methods employed in the operations, because once the capital invested had been exhausted, no new oil indications appeared, and the organizers abandoned the project, notwithstanding the fact that in the localities concerned there were places where oil covered the surface of streams. As a result of this, in 1878, after several years of neglect, Dr. Autrey, who was exploring those regions, came upon the abandoned works and staked his claim upon the spriags. Immedi- ately after he had secured the permit, he en- deavoured to organize a company for the pur- pose of exploiting them. Notwithstanding great efforts, he failed in his object, and there- upon made a special trip to the United States in order to offer for sale, to one of the petro- leum companies that were then operating in California, what he pompously called his "mines of liquid gold in Mexico." Neverthe- less, he did not succeed in attaining his object. From this time down to 1883, we have nothing OIL INDUSTRY 51 sure that could serve to indicate the progress of the activities undertaken towards the exploi- tation of petroleum. In that year there was or- ganized at San Juan Bautista (now Villaher- mosa), capital of the State of Tabasco, a com- pany with a capital of one million pesos, of which Senor Simeon Sarlat, Governor of Ta- basco, was president. This company had for its object the exploration of the petroleum springs near Macuspana, the existence of which was presumed on account of the exterior indi- cations to which we have already referred. The location for the wells was chosen in an ill- advised manner, and by preference near the pitch or asphaltum mines, which abounded in this region, and the drilling operations were be- gun at the place supposed to be best suited for it, located at a small farm which was then the property of Senor Sarlat, and very near the place where Pearson now has established the most important camp in the State. However, all was in vain; and the funds of the company were exhausted without obtaining positive re- sults. This discouraged and misled the opera- tors to such an extent that they completely stopped all work, even that which was necessary for the removal and collection of the machinery, 52 INDUSTEIAL MEXICO which, exposed to the rigours of that climate, was soon converted into heaps of rusty and use- less iron. Almost simultaneous with this undertaking, the famous English empire builder, Cecil Rhodes, was asking for a corresponding permit for the exploitation of the carbides of hydrogen in the subsoil of a great extension of land lo- cated in the district of Papantla, State of Vera Cruz, for which purpose he had gathered to- gether, in New York, a group of foreign capital- ists, who, in view of the fabulous accounts that were circulated regarding the importance of the oil indications in Mexico, undertook an enter- prise that was to be dedicated to the explora- tion and exploitation of Mexican oil, conferring the local management upon Rhodes. This or- ganization was called ' ' The Mexican Petroleum and Liquid Fuel Company," and like its prede- cessors in the same line, it failed after using up a considerable capital; and like the one or- ganized at Tabasco, it abandoned its machinery. After this succession of failures there came naturally a period of pessimism regarding the oil industry in Mexico. This lasted until 1900, when the American capitalists, E. L. Doheny and C. A. Canfield, began work in the State of San Luis Potosi. OIL INDUSTRY 53 Location of the Fields The chief Mexican oil fields can be grouped in five districts : I. The Ebano district, about forty miles west of Tampico, largely the property of the Mexican Petroleum Company. The oil has a heavy per- centage of asphaltum, and averages about twelve degrees Baume (0.986 specific gravity). II. The Panuco district, including the Topila Region, also producing a heavy oil averaging about twelve degrees Baume. According to V. R. Garfias, oil of such density cannot be econom- ically transported by pipe lines. III. The Huasteca district south of Tampico, in which the famous * ' Casiano, " " Cerro Azul, ' ' and "Potrero del Llano" wells occur. This oil is lighter than the Ebano and Panuco grades, averaging from nineteen degrees to twenty-one degrees Baume (from 0.9395 to 0.9271 specific gravity), and thus admits of being transported in pipe lines. "Dos Bocas No. 3" and "Po- trero del Llano" belong to the type of well- known "gushers" and have each produced at the rate of as much as 100,000 barrels a day. Even higher figures have been given for short periods. IV. The Tuxpam district, including the Fur- 54 INDUSTRIAL MEXICO bero region, southwest of Tuxpam. The oil from this district is, as a rule, much lighter than those of the more northern fields. V. The Tehuantepec-Tabasco district, still further to the south and east in the neighbour- hood of Minatitlan, where the Pearson interests have a refinery. The petroleum zones of Lower California and those in the north of Mexico are still unexplored. The Panuco region is characterized by three essential points — the minor depth at which the oil deposits are reached (600 to 800 metres), the relatively few failures in the drilling of wells in that region, and the short duration of the production of the wells. The Tuxpam re- gion, on the other hand, has shown signs that the deposit from which the oil is extracted, •which is of dolomite lime, is more extensive, as shown by the long periods of productivity of its wells. The Tabasco-Chiapas region, al- though it has not produced considerable quan- tities so far, has a splendid future on account of the magnificent quality of its products, which have bases of paraflSn, very light, and contain- ing enormous proportions of illuminating oil. The deposits discovered on the Isthmus of Te- huantepec up to date have been reached at com- paratively minor depths. OIL INDUSTRY 55 Great Variety of Types of Fuel Oil Much misunderstanding with regard to the statistics concerning the export of petroleum from Mexico is due to lack of information with regard to the various grades of so-called "fuel oil" likely to be included in the shipment. Specifications for heavy oil to be used as fuel are given in a pamphlet issued by the Bureau of Mines, entitled "Heavy Oil as Oil for In- ternal Combustion Engines," by Irving C. Al- len, Washington, 1913. The following easily attained requirements, drawn from this author- ity, are significant as admitting a great variety of grades, while more recent specifications are even broader : 1. Oil is available for engines if mobile at degrees F. 2. Sluggish oils are available if heated before being introduced into the engine. 3. Four per cent, of material insoluble in xylene, and 3 per cent, of coke residue may occur without disqualifying the oil. 4. The flash-point may vary from sixty de- grees to 100 degrees C. 5. The Maximum specific gravity is .92, which admits at once many grades of oil. 56 INDUSTRIAL MEXICO 6. The heavier oils can be mixed with a small amount of lighter oil (2 per cent, of "gas oil" is usually enough), and thus be made available. 7. Sulphur may occur up to 0.75 per cent. (Recent United States specifications admit 1% per cent.) 8. ParaflSn may occur up to 15 per cent. 9. Asphaltum may occur up to 15 per cent, and even more. These specifications make available a great many types of Mexican fuel oil, inasmuch as vir- tually all mobile crude oil can be burnt in the modern heavy-oil engine. Asphaltum oils con- taining as much as 20 per cent, of asphaltum have been burnt in certain types of the Diesel high-compression engine. It is usual, however, to distil the heavier grades until the tar residues and cokes are segregated, and to use a special ignition oil of a low flash-point for starting the engines. When the sulphur content is too large, according to the specifications, the per cent, can be properly lowered by the admixture of oil with a smaller sulphur content. As a matter of fact, lighter oil is nearly always mixed with the heavier Mexican oils before they are used as fuel. One ton (2,000 pounds) of ordinary bitumi- ~-~»;„l&— ■ " SCHOOLHOUSE ESTABLISHED BY HUASTECA PETROLEUM COMPANY AT TAMPICO rt 'i RAILWAY STATION AT SAN LUIS POTOSI OIL INDUSTRY 57 nous coal has been estimated as equivalent to 3.6 barrels of oil for railroad purposes, and, according to one steamboat test, to 3.5 barrels. Steaming coal contains 7,500 calories per gram, while the average Mexican fuel oil, when prop- erly mixed for use, would contain about 10,500 calories per gram. Moreover, one ton of ordi- nary steaming coal occupies forty cubic feet, while one ton of fuel oil occupies thirty-five cubic feet. If the high efficiency of Diesel en- gines is introduced as a factor, the ratio in the valud of fuel oil to coal is five to two ; whereas, for naval purposes, which include the consider- ation of bunker space, the ratio has been esti- mated to be as high as four to one. It is useful in this connection to know the principle of operation in a Diesel engine. The fuel oil is sprayed into the cylinder, where, in- stead of exploding as in gasoline engines, it simply ignites, as a result of the heat of air compressed at the rate of from 500 to 800 pounds to the square inch. One pound of oil used in the Diesel engine equals two and one- half pounds used for a turbine, and four pounds of ordinary coal used for steam production. The Diesel engine is constantly being developed and improved, and will undoubtedly increase from year to year the use of heavy Mexican oil. a m B o o D P o -< I Oi iz; o o o M O P tk M o »l o tl ■ij" CO o lo 00 M w to in •«*< i-( t- ■!»• ^ 5© t- OT -^ '^SS^S^SSS COi-(tOOOnA ^ ■*_ ooAeaoo ; a» (cToo CO ooeo^oo-* MC4 t- 1- CM uo 1-H 00 la t- u3 1- tH te N ^ to CO o 'a t- CO w_oS u3 w^cq OO 00 ifl CO o_i» 00 io_-^ c- ■ ^ og (N^ MtDeQW:*aoat-;Hoo,He« . 93 e4 t- ^ 00 1-1 tB a eo iH • • ooqtONr-i •MOOOINC- .c4o»MeoT-t tH .tHOiHO^CO t-t-uaiAoin^ooMiaooe4i-it-toiacqot*t«ooeocotot-iooa e4t-coia^eo^oop'«t-04oooo)-«QioaiC4oao3C4e>4-^^og ■^ '^ U3 CO 00 OO Oi_M^O O^OO tH C- O oq^iH 3 t~ O Oft t'^"^ ?H to CO O) ^ CO m^QO^tpeJ'acoo'io At^ufoo'oo'ooODOii'tot-r^ rH^kaiaooaaoat-Acqmai^co-^oioDr- iH i-c 94 eg c4 CO iO to 0a '^ a I i OOIAOCI OUJWt-I^COaSlHOOCOCOtOtOA^t- OOr-liHtOOeMIA r« m t- CO o «s o^io ■*^t^ o_ t— oi 00 »-< c-^ O oT i-Ti-To" t> CQ"r-r OO^OS CI OS lO o OO i-T ?aMioo>^coooeot-omt--vu3c>jw COOQCOlOlOtOrHe^-^lOt-iH 0100T-4C~-C^tOOCl -tkOiHOO lOO 0>»H^ jTietoo" I" OS :pq ia 2o ^31 a :h45 a-^'^S^oM^- Eh o a w N O M » w5 >4 J t-t « c- eo csi ■* w CO CO w^-* oo_55^ 3 ffOC-t-t-M woo "TOOOSOOCOOSOOMCflOi O »-i."*^^^^'^ *'*.■* **°.*~ '^.*'*.*'l°® O U3 Tl t- J5- r-t*s«D»-*t-t-«e>jua " l> ■^eOTt" ir-cq-* rHt-«ococoeoo_»-ieD"* „ ..,C403i-ICOCO rHr^G4ff4G>leOCQk£3CecOiHC^OO i-l IM t~ 00 oa Ol (0 lA t- O !>(^ saa H d Ph » S-lsfS^So-S-igbogtlilJ I o Af'^ o g , ".sl|'^IS.SS|JSSS22g-3 59 i gts o Sj g g a'a fl w Q Q Z < >^ H J O Z o TRADE OPPORTUNITIES 129 Mexico will probably be one location, Monterey another, Guadalajara the third, and Merida the fourth. Several months ago an automobile factory was established in Monterey, and on June 24, 1919, there arrived in Mexico City the first ma- chine turned out by this new enterprise. These Mexican cars will be known as "El Monterey," and will be native built throughout. The pres- ent capacity of the factory is 2,500 cars an- nually. The Mexican Government will foster the new industry by granting freedom from taxes for a period of years, and the govern- ment railways will transport the products of the factory at reduced rates. Manufacturing in Mexico Mexico possesses the raw materials for prac- tically all branches of industry, but they are un- exploited at home and are exported to other countries. There are some manufacturing es- tablishments in Mexico, but with a few notable exceptions they operate on a small scale, owing to lack of machinery and capital. Among the articles manufactured at the present time in Mexico may be mentioned shoes, blankets, cali- coes, cashmeres, fichus, beers, wines, furniture, 130 INDUSTEIAL MEXICO pottery, matches, accoutrements, hats. Silk and wax are manufactured — animal as well as vege- table. The principal shoe factories are in Mexico City, Leon, Guanajuato and Guadalajara. The largest factory is the Excelsior, in the capital. There are small shoe factories in all the Mexi- can States, owing to an abundance of the raw material. The greater number of hides are, however, exported. There are factories for the manufacture of textiles in Mexico City, Orizaba, Puebla, Jalisco, San Luis Potosi and Queretaro, — practically all of them supported by French and Spanish capital. The brewing of beer is a flourishing industry in Mexico, and there are large breweries in Monterey, Orizaba, Toluca and Mexico City. The malt and hops are at present imported, al- though good results have been obtained in hop growing experiments in certain regions. The manufacture of tobacco is one of the few manu- factures which have arrived at a state of per- fection, cigars and cigarettes of very high grade being made in Mexico City, Orizaba and Puebla. There are two tobacco factories in Mexico City, "El Buen Tono" and "La Tabacalera Mexi- cana, ' ' whose buildings, machinery and general arrangement are unrivalled in any part of Latin TRADE OPPOETUNITIES 131 America. The first named is a French enter- prise, and the second is Spanish. Owing to the abundant supply of precious hard woods, there is a growing industry in fur- niture making. There are enormous supplies of the raw materials for glass making, but the existing glass factories are equipped with an- tiquated machinery, and their products conse- quently leave much to be desired. Japanese Competition Japanese merchants are making a determined effort to capture a large share of Mexican trade, and are offering merchandise of all kinds at much' lower prices than their competitors. A significant event in this connection was the ar- rival recently of twenty thousand tons of sugar of superior quality at Salina Cruz, on the Pa- cific coast side of the Isthmus of Tehuantepec, directly from Tokyo. Agents of Japanese silk mills were in Mexico in June, 1919, for the pur- pose of establishing a central depot and opening branches in all the large Mexican cities for the sale of their products as well as of other lines of dry goods. The Japanese also propose to import various fibres produced in Mexico and manufacture textiles therefrom. 132 INDUSTRIAL MEXICO German Competition A pamphlet issued in May, 1919, by the Ger- man electrical trust indicates that Mexico will be a fruitful field for German enterprise, and proves that the propaganda of the Teutons did not diminish to any great extent as the result of military defeat. It says: "In Munich there was formed in 1918 a Ger- man-Mexican society composed of educated peo- ple. The purpose of this society was to dis- seminate information about Mexico, lend im- petus to a study of Spanish, bringing about the teaching of the German language and German kultur in Mexican schools, inducing Mexican salesmen to visit Germany and inducing Mexi- can youths to attend German universities. A monthly paper is also issued, entitled Deutsche Mexicanische Rundschau." In March, 1919, a similar society was formed in Bavaria with a charter membership of two hundred people. In Eenthingen there was incorporated "Al- meco," founded by industrial firms. Its pur- pose was to facilitate the exchange of raw prod- ucts and other commodities between the two countries. There is also the information so- TRADE OPPORTUNITIES 133 ciety of the "Deutsche Mexicanischer Anseid- ler." The pamphlet goes on to say that in 1913 Germany imported from Mexico goods to the value of 26,000,000 marks, and exported goods valued at 48,000,000 marks. Then there is made this interesting statement. "Seventy-five per cent, of Mexico's exports found their way to the United States, which re- gards Mexico as its warehouse. Of course, these exports will now go to Germany." Giving details about hopes for relations with Mexico, the pamphlet concludes as follows: "In 1913 there were 3,000 Germans in Mex- ico who were merchants, doctors, etc. They moved in the best circles, and are pioneers around whom our German immigrants will from now on settle. Our imports will consist of met- als, petroleum, fibres, fruits, woods, etc. "Our first duty is to secure from Mexico large imports of raw materials and not regard it as a dumping ground for German goods." American Automobiles in Mexico During my recent trip to Mexico from the Texas border to Vera Cruz one of the things which surprised me most was the quantity and 134 INDUSTEIAL MEXICO variety of American automobiles to be seen everywhere. In Mexico City there is a greater display of machines than one can find in many an American city. On Sunday morning in Chapultepec Park there is a parade of au- tomobiles past the band-stand four lines deep, two lines going in. each direction, the cars be- ing so numerous that they can only go at a walking rate. Every make and type of Amer- ican, French and British car is represented. In the business districts, in addition to all kinds of pleasure cars and motor trucks, there are hundreds of jitneys which carry passengers for short distances for ten centavos (five cents). During the year 1918, 365 commercial auto- mobiles, valued at $525,664, and 2,578 passenger automobiles, valued at $1,653,545, were exported from the United States to- Mexico by American manufacturers. In November, 1917, there were in operation in Mexico City 2,165 automobiles, 1,329 of which were for private use and 836 for hire. Among the latter were 150 jitneys and 33 taxis. There were also 2,457 coaches or carriages in Mexico City, of which 900 were for private use and the remainder were for hire. There has been an especially heavy demand for popular priced touring cars and trucks ^^^I^ « H "JITNEYS" IN MEXICO CITY A FULL "jitney" LOAD IN MEXICO CITY TRADE OPPORTUNITIES 135 — a demand which is traceable to the practical disappearance of Mexico's most popular beast- of-burden, the ox. During the revolution large numbers of oxen were destroyed by the rebels for their hides and this, together with the de- struction of thousands of freight cars and the general run-down condition of Mexican rail- roads, has created a large and constantly grow- ing market for automobiles. One American salesman sold 800 cars in Mexico in six months and during his travels through the country was keenly impressed with the demand for motor trucks throughout Mexico, both in the mining districts and for passenger service. A type of car in great demand is the five-passenger tour- ing car painted black, with leather upholstery and nickel trimmings. The type of motor pre- ferred is six-cylinder with selective clutch, gear box back of engine, full floating rear axle and twelve-inch suspension. The straight side tire equipment with sixty-inch tread is preferred. In commercial vehicles the three-ton type with three to four speed and rear wheel worm drive is given, the preference. Big cooling capacity is essential, owing to the extreme heat in some parts of the country. There is a good demand for trailers and tow- ing hooks. 136 INDUSTRIAL MEXICO Orders for American cars are usually placed on the basis of cash f. o. b. factory. Dealers usually require a commission of 20 per cent, on pleasure cars and 25 per cent, on commercial vehicles. Mexican consular invoices are neces- sary for shipment into the country, the Mexican consul obtaining 3 per cent, of the invoice price as his fee. Custopis brokers charge $5.00 per car for making entries and there is also a mu- nicipal or octroi tax of 1% per cent. Corre- spondence should, of course, be in Spanish. There is no duty on catalogues and printed ad- vertising matter. There are facilities in Mex- ico for handling storage batteries, and speed- ometres should register in kilometres. Automobile importers in Mexico are doing business today under very trying conditions, among which may be mentioned the delay in ob- taining goods, the heavy freight charges and the lack of banking facilities for financing their business. A number of the automobile agents in Mexico have large showrooms in central lo- cations, employ salesmen to travel the interior and maintain large and well-equipped garages and repair shops. It is probable that there will be a very ma- terial increase in the demand for automobiles in Tampico. Several of the most important TRADE OPPOETUNITIES 137 American motor truck manufacturers are rep- resented in that city, and there is a slow but sure increase in the use of trucks. The light serviceable type is the most popular, but the oil companies are interested in trucks suitable for heavy and hard work. Practically all of the medium priced cars are to be seen on the streets of Tampico and on the near-by motor roads. The dealers handle all makes of tires and prices range from $24 for cheap tires to $118 for the best. In Yucatan there are about 1,000 automobiles, the greater number of them in the city of Me- rida, which is often referred to as the spotless town of Mexico. Nearly all standard cars and tires are in use. Motor trucks have recently been put into use by the Mexican military or- ganization in Chihuahua, where operations against ViUa necessitate a considerable quan- tity of motor equipment. There are no exclu- sive dealers of automobiles or trucks in Chi- huahua owing to its close proximity to El Paso, where most of the different manufacturers are represented and from which point that terri- tory is usually controlled. In sending automobiles by rail to Mexico City they are consigned to a forwarding agent at the border, usually Laredo, Texas, who at- 138 INDUSTEIAL MEXICO tends to all details connected with transfer across the Kio Grande (American railway cars do not cross the river), customs, etc. Freight rates from the Mexican side at Nuevo Laredo to Mexico City for automobiles boxed or crated are 67.65 pesos in carload lots and 102.48 pesos in less than carload lots per 1,000 kilos (equal to one ton). Value of the peso is 50 cents. By water from New York to Vera Cruz the rate for automobiles boxed is 30 cents per cubic foot. The railroad rate from Vera Cruz to Mexico City is 38.40 pesos per 1,000 kilos in carload lots, including handling charges. In less than carload lots a minimum is fixed for each car. If the actual weight of the car is 750 kilos or less and does not exceed 1,750, the minimum weight charged is 3,000 kilos. Over 1,750 the minimum weight is 4,000 kilos, on the basis of the carload rate. In carload lots the minimum weight is 10,000 kilos. Laundry and Cleaning Machinery Climatic conditions in Yucatan are such that light washable clothing is generally worn the year around by all classes of people. During the mild months of the winter the well-to-do TRADE OPPORTUNITIES 139 classes use liglit woollen garments, such as serge. During the hot, dry, and very dusty months of the long summer, garments have to be laundered with great frequency and in this connection it may be remarked that the Yuca- tecans, from the common Indian labourers up, are among the most cleanly people in the world, utmost cleanliness of person and clothing being a matter of racial and regional pride. The laundry of the common people is done in the home, while that of the better classes is done by hired labour and in Spanish and Chi- nese laundries. No machinery is used in the cleaning of clothes. There are no steam laun- dries and no dry cleaners. It would seem that modern installations would pay a good return on investment. The matter of opening modern cleaning establishments does not appear to have received much attention and its promotion prob- ably could best be attempted by correspondence and advertising with young and progressive Yucatecans who have lived in the United States, who know the advantage of mechanical cleaning and who are interested in manufacturing and the importation and installation of machinery. 140 INDUSTRIAL MEXICO American Dyes in Mexico The Mexican consumption of dyes amounts to about $1,500,000 (United States currency) an- nually, and there is a splendid opportunity for Americans to capture the trade formerly con- trolled by German houses. Complaints are made, however, by representatives in Mexico of American manufacturers that it is not possible to secure a complete line from any single dye concern in the United States. Exporters and selling agents in America as a general thing represent a number of manufacturers, with the result that the shades and concentrations of the dyes do not run uniform over a number of ship- ments. The impression obtains in Mexico that American houses are waiting to renew relations with the local German firms who, previous to the war, controlled the dye business in Mexico. A valuable opportunity is being lost by any American manufacturer who entertains this in- tention, for, of course, German dye importers in Mexico will renew their relations with Ger- man factories as soon as this is possible. An active representative with a small stock for im- mediate delivery, and the ability to guarantee a continuous supply of the principal shades, uniform in colour and concentration, would find TEADE OPPORTUNITIES 141 it easy to introduce and establish a line of American dyes at present. Sport in Mexico Manufacturers of sporting goods and equip- ment will be interested to learn that many Amer- ican sports have successfully invaded Mexico, and one of the first letters which I received on my arrival in Mexico City in April last was an invitation to attend a baseball game. There is a fine baseball park near the Paseo de la Re- forma, and the Mexicans put up a very good game. The Spanish residents in the capital have taken up football and there are a number of clubs, the principal one being the "Espana." Football is also very popular in the States of Hidalgo and Puebla. Boliche is of course played all over Mexico, and there are many good tennis and golf clubs. Pelota is another fa- vourite game. Horse racing has always been a favourite sport in Mexico, and there are hippodromes in Mexico City and in Cindad Juarez, Chihuahua. Physical culture is given by experienced teach- ers in gymnasiums in Mexico City and else- where, wrestling, jiu jitsu and boxing also be- ing taught. The Y. M. C. A. in Mexico City is 142 INDUSTRIAL MEXICO a centre for tlie teaching of all sports, includ- ing swimming. Bull fighting has been prohibited in Mexico City, and at the time of my visit the bull ring, holding forty thousand people, was used on Sun- days for grand opera. We attended a perform- ance of "Aida," excellently rendered by an Italian Grand Opera Company from the United States. Trade Bodies in Mexico Following is a list of the local Chambers of Commerce in Mexico, which are legally recog- nized and in afl&liation with the National Cham- ber of Commerce, whose headquarters are in Mexico City: City of Aguascalientes, State of Aguascalientes. City of Aeapuleo, State of Guerrero. City of Campeche, State of Campeche. City of Juarez, State of Chihuahua. City of Mexico, Federal District. Industrial Chamber of Agriculture and Mines, Juarez, Chihuahua. City of Colima, State of Colima, City of Cordoba, State of Veracruz. City of Cananea, State of Sonora. City of Victoria, State of Tamaulipas. City of Chihuahua, State of Chihuahua. TRADE OPPORTUNITIES 143 Industrial Chamber of Agriculture and Mines, City of Chihuahua. City of Durango, State of Durango. City of Guadalajara, State of Jalisco. City of Guanajuato, State of Guanajuato. City of Guaymas, State of Sonora. City of Hermosillo, State of Sonora. City of Irapuato, State of Guanajuato. City of Jalapa, State of Veracruz. City of Leon, State of Guanajuato. City of Laguna del Carmen, State of Campeche. City of Matehuala, State of San Liiis Potosi. City of Matamoros, State of Tamaulipas. City of Monterey, State of Nuevo Leon. City of Morelia, State of Michoaean. City of Merida, State of Yucatan. City of Orizaba, State of Veracruz. City of Puebla, State of Puebla. Chamber of Agricultural Industry, City of Puebla, State of Puebla. Chamber of Commerce and Agriculture, City of Paso del Macho, State of Veracruz. City of Queretaro, State of Queretaro. City of SaltiUo, State of Coahuila. Chamber of Commerce, Industry and Agriculture, City of Tampico, State of Tamaulipas. City of Tulancingo, State of Hidalgo. City of Tehuacan, State of Puebla. City of Tepic, State of Nayarit. City of Toluca, State of Mexico. 144 INDUSTRIAL MEXICO Chamber of Commerce of the Laguna District, City of Torreon, State of Coahuila. Chamber of Agriculture of the Laguna District, City of Torreon, State of Coahuila. City of Veracruz, State of Veracruz. City of Zacatecas, State of Zacatecas. The committee on transportation of the Mississippi Valley Association trade mission to Mexico reports that arrangements have been made to facilitate the handling of parcel post and express packages over the border and through customs inspection. It finds that one of the most serious handicaps to trade expan- sion to the south lies in the fact that the Amer- ican railways will not permit their cars to be through routed to Mexican points, which en- forces expensive and tedious reloading into cars of the Mexican National Railways. A scheme has been worked out whereby a car may be billed through if the shipper fur- nishes a bond for $2,500 to insure the return of the car from Mexico and pays $75 for the return of the car empty over Mexican lines. This is a costly and unsatisfactory arrangement. The committee will appeal directly to the railroad administration to make arrangements for through routing and through bills of lading. Until such a plan is perfected the mission ad- < ►J <: H 05 o 2 o -a: Oi O oi o o Z w S 0- o > w o o o X w s o z w Q m s PS TRADE OPPORTUNITIES 145 vises the shipment of all goods, except those consigned to cities in the north of Mexico, by boat to Tampico and Vera Cruz. The Present an Opportune Time The comnaittee on wholesaling and manufac- turing sales, of the Mississippi Valley Associa- tion, of which Walter C. Alward of the Chi- cago office of Carson, Pirie, Scott & Co. is chair- man, says: "It is the opinion of the committee that the present is an opportune time for American con- cerns to open the way for a larger and per- manent trade with Mexico. Conditions in the country today are no worse, as far as the com- mittee can determine, than they have been for the last few years, while in many respects they have improved. Little could be gained either by individual business interests or by the coun- try in staying out of Mexican markets at this time, and there is much to be said in favour of immediately entering that trade." This is the opinion of all those who have investigated opportunities for selling merchandise of the sort carried by the average city shop and of those seeking the products of Mexico. 146 INDUSTKIAL MEXICO Mexican Exports and Imports Following is a list of the articles in general export and import trade : Exports Coffee. Henequen. Guayule (Mexican Rubber). Hule (Para Rubber) . Cocoa. Guano. Fibres. Lechuguilla. Ixtle. Zapupe. Palma. Candelilla (Vegetable Wax) . Zacaton Root. Hides (Crude and Tanned). Cotton. Cotton Seed. Pochote (Vegetable Silk). Plaster. Asbestos. Graphite. Carey. Pearl Shells. Chicle (Raw Chewing Gum). Bones. TRADE OPPORTUNITIES 147 Wool. Petroleum. Oil Seeds. Castor Oil. Ajonjoli. Almond. Cayaco or Coyol. Peanut. Woods (Construetion, Tanning and Colouring). Cigarettes. Cigars. Tobacco. Fruits. Algas (Marine). Vanilla. Tecalli (Mexican Marble). Marble. Medicinal Plants. Magnesite. Minerals (Gold, Silver, Copper, Lead, etc.). Salt. Sarsaparilla. Sodium Carbonate. Colouring Earth. Imports Artificial Flowers. Asbestos. Asphaltum (Manufactures of). Athletic Goods. > 148 INDUSTRIAL MEXICO Babbitt Metal. Shoe Paste and Polish. Brass (Manufactures of). Oatmeal. Table Food Preparations. Brushes. Buttons. Automobiles. Automobile Trucks. Automobile Accessories. Cars. Wagons and Wheelbarrows. Celluloid Products. Cement (Hydraulic). Sulphuric Acid. Baking Powder. Calcium Carbide. Copper, Sulphate of. Chemicals, Drugs, Dyes, Medicines. Patent Medicines. Soda, Salts and Preparation of. Clocks. Coal (Bituminous). Coke. Confectionery. Copper (Pigs, Ingots, Bars, Wire, Plates and Sheets). Cotton Duck (Bleached and Unbleached). Corsets. Knit Goods (Wearing Apparel). Wearing Apparel (other than knit). TEADE OPPORTUNITIES 149 Fire Brick. Tiles. Batteries, Electrical Goods in General. Electrical Machinery. Telegraph and Telephone Instruments. Dynamite. Bags. Cordage. Twine. Smoked Fish. Pickles. Oysters. Canned Fish. Flavouring Extracts. Fly Paper. Dried Fruit. Metal Furniture. Glass Bottles. Glass Jars. Glass Demijohns. Glue. Jewellery. Hops. Belting. Boots and Shoes. Printer's Ink. Scientific and Optical Instruments. Bolts, Nuts, Rivets and Washers. Castings. 150 INDUSTEIAL MEXICO Cutlery. Enamelware. Firearms. Engines (all kinds). Engines (parts). Machinery (all kinds). Machinery (parts). Pipes and Fittings. Sadiators. House Heating Apparatus. Boilers. Stoves. Banges. Structural Iron and Steel. Tin Plates. Temepletes. Tools (all kinds). "Wire (Plain). Wire (Barbed). Metal Polish. Motor Boats. Piano Players. Naval Stores. Mineral Oils (Petroleum Products). Vegetable Oils. Paints. "Varnish. Books, Music, Maps, Engravings, Etchings, Photo- graphs, and Printed Matter. Paperboard. TRADE OPPORTUNITIES 151 Paper Hangings. Printing Paper. Wrapping Paper. Writing Paper. Paraffin and Paraffin Wax. Pens and Pencils. Perfumeries. Cosmetics. Plated Ware. Roofing Felt. Shoe Findings. Toilet Soap. Surgical Appliances. Tin Products. Toys. Umbrellas. Zinc Products. A bank in San Francisco in its monthly letter for July, 1919, makes the following statement: Our trade with Mexico, while important, is trifling compared with its possibilities, £ind needs systematic and probably organized exploitation. Western Mex- ico has not been seriously affected by the disturbances in that country, which, in any case, seem to have de- generated into ordinary banditry which cannot last much longer in the face of modem means of suppres- sion. To the eight or ten ports of call on the west coast we now ship by regular steamer lines between 60,000 and 70,000 tons of general merchandise and 152 INDUSTRIAL MEXICO mining supplies, besides lumber and whatever is taken by small tramp steamers. Normally the ports on the east side of the Gulf of California should get much more by rail, but the rail service is through the dis- turbed district. We import very little except from Salina Cruz, from which we get coffee and some other tropical products, the tropical zone beginning a little north of the southern extremity of the peninsula of Lower California. All these ports have more or less extensive hinterlands, that tributary to Acapulco being especially large and attractive. As a practical propo- sition as distinguished from talk leading to nothing in particular, this west coast of Mexico would seem to be one of the first regions to be studied. This study would have to be made by agents who speak the local language, who are sympathetic with the Latin Ameri- can nature and who have adequate capital at their demand for both trade and investment. Trade-Marks and Patent Laws Registration of trade-marks in Mexico is valid for a term of twenty years and may be reneiived. The fees payable in connection with applications are as follows : Government regis- tration fee 5 pesos ; stamp on power of attorney 10 centavos; stamp on application 50 centavos; stamps on application for legalization of con- sular certificate and on the certificate of legaliza- tion 50 centavos each. Applications must be TEADE OPPORTUNITIES 153 typewritten on paper 330 by 215 millimetres with a margin of 54 millimetres on the left. The application must be accompanied by a descrip- tion of the mark with claims in triplicate, an electrotype, twelve copies of the mark and a power of attorney if application is not made by the owner. A separate application must be made for each mark to be registered. Owner- ship of trade-marks in Mexico is based upon priority of application but during the first two years it is possible to secure the cancellation of marks improperly registered. After two years registration is conclusive proof of OA^nership. The law provides for the protection of commer- cial and trade names without registration. No- tice of applications for registration is supposed to be given by publication but as the applica- tions are usually published about a year late it is unsafe to rely upon such notice. Mexico is a party to the international ar- rangement for the registration of trade-marks with headquarters at Bern and by a single reg- istration in Bern citizens of countries adhering to the convention obtain registration in Mexico as well as in the other signatory countries. This form of registration is not open to citizens of the United States. Neither is Mexico a party to the Pan American Trade-mark Convention 154 INDUSTEIAL MEXICO under which a bureau for international registra- tion has recently been established at Havana. Applications must therefore be made directly to the Mexican Office of Patents and Trade-marks. Registered trade-marks as well as electrotypes for use in connection with applications must show the words "Marca Industrial Registrada" or "M. Ind. Rgtrda" if for factory marks and the words "Marca de Comercio Registrada" or "M. de C. Rgtrda" if for marks used only by dealers. The registration number and the date of registration must also be shown and a place for these data should be left on the electro- type. Unless the mark consists solely of a de- sign or figure without words, the name of the applicant and the location of the establishment must al^o be shown and these must likewise ap- pear on the electrotype. Patents are registered at the Oficina de Pat- entes y Marcas, Calle de Filomeno Mata 8, Mex- ico, D. F. The applications miist be typewrit- ten on paper the same size as that indicated for trade-mark applications and must bear a stamp of fifty centavos. The application should show the name of the inventor, the name given to the invention, the object of the invention, the name and residence of the agent and address of the applicant, and must be accompanied by a TRADE OPPORTUNITIES 155 triplicate description of the patent ending with a "reivindicacion," that is, a clear statement of the elements constituting the invention. Triplicate drawings must also be furnished as well as a model if required. If the application is satisfactory, the applicant is directed to pay the fees. The fee for a provisional patent valid for one year is five pesos, while for a regular patent valid for twenty years the fee is forty pesos. A provisional patent may be converted into a regular patent within one year upon pay- ment of an additional fee of thirty-five pesos. For examinations to determine the novelty of an invention, a charge of twenty pesos is made. No working of the patent is required but after three years the courts may direct patentees to license the use of inventions by others if the in- vention is not available to the public on a suffi- cient scale. Before such compulsory license will be granted, however, a hearing is held and the compulsory license may be revoked at the end of two years. One-half of the net profits arising in such cases are given to the owner of the patent. The Mexican trade-mark and patent laws have remained practically unchanged for a number of years. Previously there was considerable complaint about the pirating of American trade- 156 INDUSTEIAL MEXICO marks in Mexico, but apparently such cases are less frequent now. The separate States have no jurisdiction in matters relating to trade- marks and patents. Applications must be in the Spanish language and it is preferable that they be made out by the representative of the applicant in Mexico. It is also preferable that the electrotype be made up in Mexico in order that all of the required data may be included. Protection for trade names may be secured by publication in the prescribed form. A stamp of one peso must be attached to the application for publication. CHAPTER VIII SUGAB AND COFFEE PLANOVltONS Sugar mills resuming operations. Equipment needed. Opportunities for American capital. Large scale operation. Coffee production. Owing to the destruction of some of the cane sugar producing factories in the State of More- los, but recently freed from the grip of the bandit Zapata, and to rebel activities in the State of Vera Cruz, the production of sugar in Mex- ico during the last few years has been consider- ably reduced — so much so that in 1918 it was necessary to import thousands of tons from Cuba to make up the amount needed for do- mestic consumption. In 1911, before the revolu- tion, the production of Mexican sugar amounted to 160,000 tons. The sugar mills are, however, resuming oper- ations in many parts of Mexico, and present prospects are for a crop of 115,000 tons for 1919-20, In the west coast States of Sonora and Sinaloa, where the irrigated sugar planta- tions of the Almada Company, Redo & Co, and the United Sugar Companies (American), are 157 158 INDUSTRIAL MEXICO located, rebel activities have had hardly any effect upon operations, which were only inter- fered with once, in 1916, by a Villista raid. The Cuatotolapam sugar mill on the, San Juan River in the State of Vera Cruz, owned by E. V. Weems of Winchester, Virginia, is running, and so are the following sugar mills: Oaxa- quena mill at Santa Lucreoia, Vera Cruz, the Santa Fe mill at Tlaeotalpan, the Paraiso Novil- lero mill and the Motzorongo mill, both in the State of Vera Cruz. One of the leading sugar mills in the State of Oaxaea is that at Niltepec, on the Pan American Railway. The annual production of this plan- tation and mill is 1,000 to 1,500 tons of white sugar and 100,000 to 125,000 litres of alcohol of ninety-six degrees. The company is at pres- ent planning to extend its plant in order to in- crease its output to 3,000 tons of sugar a year. Another sugar mill and plantation in the same State are located in LaoUoag, producing each year about 300 metric tons of sugar, although capable of turning out 1,000 metric tons. A third company owns a plantation in Mixtequilla, about four kilometres from Tehuantepec. The output of this estate ranges between 160 and 165 metric tons a year. As a result of my recent tour through Mexico SUGAE PLANTATIONS 159 I met N. A. Helmer, a New York engineer who specializes in sugar machinery, and who was down there making an extensive investigation regarding the conditions surrounding the opera- tion of the irrigated sugar plantations of the 'United Sugar Companies located at Los Mochis, State of Sinaloa, about 600 miles south of No- gales, Ariz., and fourteen miles south of the port of Topolobampo, which is the terminus of the Kansas City, Mexico and Orient Rail- road. There are two distinct plants at Los Mochis, known as the Aguila and Mochis, the acreage of the two plantations being about 140,000 acres, approximately one-tenth of which is under cul- tivation. The cane grown here is mostly a pur- ple variety, fairly straight, with a rind exceed- ingly hard and high fibre content never less than 12 per cent, and sometimes as high as 16 per cent. Cultivation is largely carried on with traction engines, although mules and oxen are also used. The labour is largely Indian and Mexican, housed in colonies located near the points where they are employed. To induce la- bour to remain, supplies are sold to them at cost or less from the commissaries operated by the company. There are two irrigation plants affording an ample water supply, the system of 160 INDUSTEIAL MEXICO canals being complete and highly organized. The market for the products of these planta- tions is entirely Mexican. They grow about twenty-five tons of sugar cane to the acre, yield- ing about 10 per cent, of white sugar and about three gallons of alcohol to the ton of cane — the alcohol being about 96 per cent, anhydrous. Manufacturing costs are about $12 per ton. The market for sugar is along the west coast to Mazatlan and large quantities are shipped north to Nogales, thence in bond to El Paso and Laredo as distributing points to Central and Eastern Mexico. The market does not demand an extremely high grade of sugar. Only one grade is produced ; namely, a fine grained hard cube sugar sold in paper-lined sacks. In talking over the political conditions in the districts visited by Mr. Helmer he said, "My observations have led me to believe that the newspaper reports of outrages are exaggerated and that the conditions are far better than those existing twenty-five years ago in Kansas or other poorly policed agricultural States of the West. I believe that conditions in Mexico will improve rapidly as soon as our government as- sists Mexico by permitting the introduction of military supplies on the distinct understanding that effective repressive measures are to be un- SUGAR PLANTATIONS 161 dertaken against brigandage of any descrip- tion, so as to permit the demobilization of a por- tion of the labour now in the military service. ' ' Equipment Needed by Sugar Plantations The equipment needed by the sugar industry includes evaporating machinery, such as vacuum pans and multiple effect evaporators, boilers, pumps, piping, valves, fittings, fire brick, struc- tural steel for buildings, tank material, distilling machinery, cotton and jute sacks for sugar, cans (and boxes to contain them) for alcohol, casks, cooperage machinery, electrical equipment for lighting and power, hydro electric machinery, plantation railroad equipment, mechanical ploughing equipment, agricultural tools, live stock, chemicals for clarification of sugar juices, office equipment, and internal combustion mo- tors. The sugar industry in Mexico offers one of the most productive opportunities for the in- vestment of American capital and the introduc- tion of modern machinery. Mexico is in many respects an ideal sugar producing country, and it might rank with Cuba if as much attention were given to the crop in the one country as in the other. Sugar cane grows in practically 162 INDUSTRIAL MEXICO every State in the Republic, and it is due to the primitive methods employed that Mexico has not entered more largely into the sugar export trade. Plantations of sugar cane covering in all hundreds of thousands of acres exist in the States of Puebla, Morelos, Vera Cruz, Oaxaca, Sonora and Sinaloa. The industry is at present carried on both by the wealthy planter, with his hundreds of thou- sands of dollars invested in lands and refineries, and by the poor renter, with his few acres of ground, his wooden rolls and copper kettle. The rich man produces the refined white sugar, and the poor man produces the various classes of brown sugar, known in Mexico as "pilon- cillo" and "panocha," which when fresh re- sembles maple sugar, and which are used to sweeten beverages. Lands on the elevated levels yield less but richer cane than that planted on the lowlands, and attempts in recent years to grow the .sugar cane on the plateau have met with decided sue-- cess. From twenty-five to forty tons of cane per acre is stated to be the average yield on the elevated plantations and from forty to sixty tons in the tropical lands. The cane, especially on the Gulf slope, grows to an enormous size, SUGAE PLANTATIONS 163 and does not need a heavy outlay for its irriga- tion and cultivation. It is safe to say that not more than 10 per cent, of the land available in Mexico for the planting of sugar cane is utilized. There is a large field in the country for the best class of refining factories, although before the revolution there were over two thousand sugar mills in Mexico, large and small. There is a tendency to in- crease the acreage under cultivation and to mod- ernize the methods in the refining of the raw material. It is in large scale operation that real money is to be made in Mexican sugar. For a planta- tion having 6,000 acres in cane, with the proper machinery and buildings, the working capital should be about $1,250,000, exclusive of the land. Such a plantation would handle about 1,000 tons of cane a day of twenty-four hours. They would probably grind about 120 days in the year, which would mean that they would have to raise 120,- 000 tons of cane. The average cost of cane in Mexico should not exceed $2.50 a ton delivered to the factory. Mr. Helmer was kind enough to furnish me with some operating data which showed that a modern factory operating on average cane from 164 INDUSTRIAL MEXICO irrigated lands would produce about 10 per cent, of white cubed sugar, and this cane being of a very high fibre content would almost sup- ply all of the fuel required to manufacture the sugar, the limit to the fuel economy being the extent to which the exhaust steam was utilized in multiple effect and for heating the juices. On new alluvial lands, the quantity would be generally less on account of the rank growth of the cane tending to produce gums and invert sugars rather than sucrose or crystallizable sugar, although after a term of years the juices would become richer and the tonnage of cane decrease. The average Mexican factory for the produc- tion of sugar contains a great deal of very high- class and expensive machinery, but as a gen- eral thing very little attempt is made to obtain the engineering refinements, particularly in the matter of heat economy, that so distinguishes the modem Cuban or Hawaiian factory, and, to an even greater degree, the American beet sugar factory. It would appear that in the reconstruction of such plants as may have been damaged during the revolutionary period, it would be desirable for the owners to study this feature of plant COFFEE DRYING NEAR JALAPA, MEXICO GRADING COFFEE IN MEXICO SUGAR PLANTATIONS 165 equipment or engage an expert, as the use of additional fuel requires a great deal of com- mon labour to obtain it, considerable transpor- tation equipment to bring it to the plant, addi- tional labour to use it, and, most serious of all is the fact that wood fuel is a very scarce article except on the coastal plain along the Gulf. Coffee Although the competition with Brazil is keenly felt by coffee planters throughout Mex- ico and Central America, coffee growing has not decreased except in certain districts, notably in Vera Cruz, where rebel activities have inter- fered with production and shipping. The zone with the largest comparative production is to be found contiguous to the Isthmus of Tehuan- tepec. In general the State of Colima, with some districts of the States of Puebla, Morelos, Jalisco, Hidalgo, Michoacan, Mexico, and Tepic, produce coffee crops, and while Vera Cruz in normal times leads all other States in the quan- tity of its output, the State of Colima and the Uruapam district of the State of Michoacan, grow the finest quality. It was from a planta- tion in Colima that a shipment of coffee was 166 INDUSTRIAL MEXICO annually made to the former German Kaiser. Coffee in Mexico is generally grown at an elevation of 2,000 to 5,000 feet. In certain dis- tricts the plantations are situated below 1,000 feet, but it is a recognized fact that coffee grown at such low levels is inferior in quality. The only redeeming feature is that the quantity pro- duced is so much greater, which compensates the planter for the lack of flavour and conse- quent lower price. The production per acre runs from 250 to 500 pounds. These results are obtained from ordinary cultivation, but they can be greatly augmented by improved methods, as no plant more readily responds to high cul- tivation than the coffee tree. The amount of coffee grown in Mexico in normal times varies from 77,000,000 to 110,- 000,000 pounds, and the amount exported is about 39,600,000 pounds. The number of coffee trees to the acre varies from 500 to 1,000. The usual life of the tree is about forty years, but it is in its prime from the sixth to the thirteenth year. After the plantation is well organized and on a paying basis, it is only necessary for the owner to be on it during the picking season, which comes in the delightful months of winter. In fact it is perfectly feasible for a man to run a fruit farm in the United States and a coffee SUGAE PLANTATIONS 167 plantation in Mexico at the same time ; thus the winter season, which is a dead loss to many American agriculturists, could be used by them in coffee production. It cannot be too strongly emphasized, however, that bandits and rebels are still active in some of the best coffee grow- ing districts, and no American should venture either his money or his person until he is as- sured of adequate protection to life and prop- erty. CHAPTER IX CBEDIT AND BAliKING Local banks. American trade largely on cash basis. Bank credits. Sales terms of American manufactiir- ers trading with Mexico. Mexican bank finances shipments. New Banking Law. The business being done at present by local banks in Mexico City consists almost entirely of foreign exchange transactions, and even in this line of business they have to meet the com- petition of street brokers, who are able to handle such transactions at a smaller margin of profit for the reason that they are under little or no expense. Some of these banks are handling commercial credits to a limited extent, and make advances on Bill of Lading with insurance policy attached covering local shipments, at interest charges of from 3 to 5 per cent, per month. One local bank is financing a limited number of import shipments from the United States through their New York correspondents, but only for the ac- commodation of old clients, and usually at terms not to exceed thirty days. 168 CREDIT AND BANKING 169 Deposits are accepted by banks up to limited amounts, and in some cases a charge of 1 per cent, is made for the privilege, the banks having neither the means nor the desire to invest money- entrusted to their keeping. The usual loan and discount features of the banking business are not being handled by local banks, and the in- terest on such loans as are made has been as high as 2 per cent, per month. In other words, the business now being done by these institutions is on a day-to-day basis, with no evidence of that permanency and sta- bility which is essential to a successful banking business. The lack of confidence and apparent feeling of uncertainty which prevails among bankers in Mexico today may be explained by the fact that many of them have passed through the difficult days of the revolutions, and have suffered losses arising from the chaotic mone- tary situation which prevailed until the present gold standard was adopted. As a result the banking business is being conducted in such a way that if these institutions were called upon to liquidate, they would be able to do so at short notice, and a minimum loss. This lack of banking facilities in the real sense of the term has occasioned great difficulty in local commercial transactions by eliminating the 170 INDUSTEIAI. MEXICO use and advantages of credit almost entirely, and taken in connection with the lack of circu- lating medium which prevailed for a time, has been a distinct handicap commercially. American trade with Mexico during the last four and a half years has been on a strictly cash basis with few exceptions. American com- mission merchants and manufacturers' agents and representatives have been obliged to insist on a partial payment in cash of the invoice value of import orders, the balance usually covered by sight draft against documents, payable either in New York or at a Mexican port of entry. A considerable share of business being placed by Mexican importers is being financed by cred- its opened by them with New York banks against which shippers may draw at sight for value of invoice, and some of the larger importers in Mexico have found it profitable to appoint buy- ing agents in New York and elsewhere who at- tend to their purchases, the shipping of their orders, and in some cases to the payment of in- voices. For this service a conamission on total annual purchases is paid, the amount of the commission varying with the nature of the busi- ness, but usually not over 5 per cent. This latter arrangement has been satisfactory to importers in Mexico because it enables them CREDIT AND BANKING 171 to take advantage of the cash discount allowed by the factory, and by bringing them into closer relations with the manufacturer, insures them the best export prices, rapid handling of ship- ments, and close contact with the developments of the trade in their line of merchandise. An intimate knowledge of business methods in Mexico, of the intricacies of the Mexican tariff and especially of the quality and price of the merchandise saleable in Mexico are requi- sites and essentials of handling such a business successfully by agents in the United States. Under present conditions there is a large field in Mexico for the development of this branch of export business, and reliable houses in the United States which may be equipped to handle it could make important connections in Mexico, especially if they were willing to finance pur- chases themselves instead of being obliged to ask the purchaser in Mexico to open a credit in their favour for the payment of invoices. It is certain that the bulk of Mexico's import trade will be done in the future on a credit basis, and while our proximity will always give us a certain advantage in competition with Euro- pean manufacturers, other factors such as price and quality being equal, they have on the other hand the distinct advantage of entering the field 172 INDUSTRIAL MEXICO prepared to extend credit while American, man- ufacturers and exporters with but few excep- tions are still trying to maintain a cash basis. It is apparent that our competitors for Mexi- can trade are closely in touch with the situa- tion and its possibilities for the future, and have been quick to see the advantage of the entering wedge which liberal credit terms will give them in re-establishing their former trade with Mex- ico. In a word, they are ready to accept what- ever of risk there is in the situation, and to be successful we must do likewise. There are in Mexico many houses of entire responsibility in every line of trade, and the matter of extending credit should be left to the discretion and good judgment of the representa- tive or agent of the manufacturer or exporter who is on the ground, and who by careful selec- tion and personal contact with the most impor- tant concerns will be in the best position to de- termine whether or not credit should be ex- tended, and on what terms. The personal in- vestigation on the part of the man in the field should in all cases be supplemented by a report from a reliable bank with American connections, or from a credit agency. Owing to the number of inquiries received re- garding present credit conditions in Mexico, the CEEDIT AND BANKING 173 National Association of Credit Men has recently completed an investigation of the sales terms employed by representative members of that Association who are doing business with Mex- ico. The following are extracts from the replies received from firms handling various lines in demand in Mexico : Manufacturers of Stockings. All of our busi- ness with Mexico for some time past has been on a cash in advance basis. Knitting Company. We have several very reliable customers in that Republic to whom we have been shipping merchandise regularly for years. This merchandise goes forward to them with draft attached to documents which are de- livered against the acceptance of draft at sixty days ' sight. We have also a number of custom- ers who have just started with us from Mexico, who have been sending us cash or draft with their orders. We believe that the general busi- ness condition in Mexico has not improved so materially, but believe this country will be very desirable in the next six months. Cotton Goods. Owing to conditions existing in Mexico we required, until recently, cash in New York, but have within the past few weeks decided to ship merchandise to the best of the Mexican houses on a basis of sight draft at des- 174 INDUSTEIAL MEXICO tination or thirty or sixty days' accepted draft against documents. Manufacturers of Oil Cloth. We are making shipments to Mexico under three sets of terms, namely, cash in New York before shipment goes forward, sight draft documents attached, and open credit (cash upon receipt of documents). While we have been extremely careful and still are regarding Mexican credits, we believe con- ditions are improving and we are gradually modifying credit restrictions, depending of course upon the account and our knowledge of the financial conditions of same. Manufacturers of Paper Bags. For the past three or four years all shipments made by us to Mexico have been on terms of cash with order, letter of credit subject to draft or draft with documents attached at the border. Manufacturers of Signals. Our business is done almost exclusively with railroads and since the disturbed conditions in Mexico we have sold all materials sight draft against bill of lading. New York. Manufacturers of Watches. Most of our transactions down there have been made under what we call regular account. The party has had to prove to us most satisfactorily their credit standing and we have never allowed our CREDIT AND BANKING 175 accounts to go much over $1,500 or $2,000. In other shipments that we may have made to Mexico during the time of the war terms have been documents against payment through either a New York representative of the concern, mer- chandise remaining in the banker's custody against payment, or to some duly endorsed bank representative in Mexico. Manufacturers of Tools. We do not care to do much business with concerns in Mexico ex- cept on terms of draft with documents attached. Manufacturers of Roofing Material. Most of our business in Mexico is conducted on a cash against documents basis. When accepting an order from a concern we have had no previous dealings with, we generally ask them to open a credit with a New York bank, unless we can obtain positive assurance that our documents will be taken up promptly upon presentation, in which case we draw on the customer at sight. If we find later that our bills are being met promptly, we do not hesitate in extending to such customers our thirty or sixty days ' accept- ance terms. Quotations on our products at the present time are f. o. b. cars. New York, and when drawing our drafts we include the amount of our invoice, plus ocean freight, marine and war risks. 176 INDUSTRIAL MEXICO Manufacturers of Pipe. Up to recently a good many of the Mexican houses in good stand- ing have had their goods shipped through No- gales, Ariz., and billed accordingly. Payments have been made to us through their Nogales oflSces, and as these houses were of unquestion- able standing we did not hesitate to fill any order that came before us. We have also had a few transactions with houses located in Mexico City, but their standing was so high that we at their request and risk made shipment on open terms, and have already received our money. We are now negotiating with a certain party to represent us in Mexico and have given instruc- tions that credit against orders taken should be opened in New York, or if necessary to sell goods on sight draft against documents, pay- ment to be made on arrival of the goods in Mexico on these terms. We feel that con- ditions in Mexico at the present time are not sufi&ciently staple to sell goods on open terms. Manufacturers of Rope. Whatever business we are doing with companies in Mexico is being handled on a cash basis. Refining Company. On our shipments to Mexico, we either receive check in advance or else have a confirmed credit opened up in this CEEDIT AND BANKING 177 country, against which, we draw with bill of lading attached. Manufacturers of Ploughs, etc. Our business with customers in Mexico during the past year and a half, has been somewhat more active than for several years prior to that time. Even at that, though, the volume is not anywhere near the amount which we enjoyed prior to the revo- lution, about 1913. The unsettled conditions have compelled our restricting shipments in many cases to a cash-in-advance basis, even to some customers who prior to the revolution were regularly extended credit on terms of sixty days net, 2 per cent, for cash in ten days. At this time, there are probably one half-dozen of our old well-established customers to whom we ship goods, invoices amounting from $3,000 to $3,500 on open account, terms sixty days net, 2 per cent, cash in ten days. The balance of the business is handled either cash in advance or cash against documents at the border. Manufacturers of Medicine. It has been the policy of this house to request "cash with or- ders" for the past two or three years. Wholesale Dealers in Stationery. What we have been doing has been strictly on a cash basis, and only in one or two places around Yu- catan. 178 INDUSTEIAL MEXICO Manufacturing Chemists. All of our trans- actions with parties in that country have been made on a strictly cash basis. Bag Manufacturers. On shipments to Mex-. ico we ask for cash in advance. Shipments are made to the customer direct through forward- ing agent at border. Manufacturers of Shoes. We have not been shipping direct on open account to any but the largest concerns of unquestionable standing un- til very recently. We have a few accounts in Mexico to whom we have been selling through the disturbing period on open account, but on other accounts we have either asked them for payment in advance or have required some sort of confirmed credit to cover their orders. Just a short time ago, our salesman went through this territory, and we are now arranging to handle orders in this section both on open ac- count basis and in some cases — draft against documents at Laredo, Texas, or some other bor- der city. Our credit information in these ac- counts consists largely of the information gath- ered direct by our salesman when he took the order, from bankers, business houses, etc., and the usual conmiercial credit reports. You will see by the above that our method of handling Mexican business has not been standardized yet, CEEDIT AND BANKING 179 as it has appeared to us that conditions in Mex- ico are such that it is impossible almost to standardize any method of handling credits there just at this time. It is much safer, in our opinion, to take each particular order separ- ately, and let the method of handling same be governed by the prevailing circumstances. Manufacturers of Electrical Supplies. We have no fixed manner in which we are extending credits to Mexican buyers. In some instances we are insisting upon full payment with the order, and we also ask the following terms: (1) One-half payment with the order and the balance draft against shipping documents. (2) Full payment against shipping documents. (3) Where the companies are owned by Amer- ican capital we are extending open credit. Manufacturers of Glass. We have a very small business in Mexico and on account of the unsettled conditions there, we have felt it better to hold these few customers to a cash basis. There seems to be just a little more activity at this time than in the past. Manufacturers of Scales. With two or three exceptions, all business with Mexico is handled on a cash-before-shipment bgfsis. The excep- tions are firms to whom we have sold on open account for a number of years and their credit 180 INDUSTRIAL MEXICO standing and ability- to pay their bills is un- questioned. Manufacturers of Furniture. Under ordi- nary conditions we have shipped into Mexico under our regular terms of 2 per cent, thirty, net sixty, bills payable in New York exchange, and we are pleased to admit that we have had very little trouble with our Mexican accounts. Manufacturers of Shoe Polish. We have our representative in Mexico, who also has an office in Vera Cruz and Monterey and our business with Mexico is done on the basis of a remittance from customer prior to shipment, or cash de- posited in New York against documents less dis- count for cash, as our representative being on the ground, is abl§ to notify the customers and see that drafts are accepted and taken care of. Manufacturers of Abrasive Materials. We are making very few shipments to Mexico on a basis of sight draft attached to bill of lading. Our terms have been and are now C. 0. D. bor- der or port of entry with the usual advance pay- ment of 10 to 25 per cent., guaranteeing freight in the event of non-delivery. From this, how- ever, we make some deviations in that where an account is established with us in the way of meeting its obligations promptly on C. 0. D. basis we sometimes waive the requirement of CREDIT ANJ} BANKING 181 advance payment. We make another deviation to a certain class of merchants whose responsi- bility we consider unquestionable and ship them on a C. O. D. basis, being careful of course al- ways to watch to what particular part of the Eepublic they go and another exception is made in that we have a few accounts whose terms are what we might term regular, meaning sixty days. Those were our regular terms to Mexico prior to the time that we placed them on a C. 0. D. basis. Those exceptions, however, only represent a small percentage of the ac- counts that we now handle in Mexico. The mat- ter of credit really is a question of confidence and mutual understanding between the manu- facturer and exporter and their clients in Mex- ico. Powder Worhs. The general trade condi- tions in Mexico show no great improvement over the past several years due to the general demoralizing conditions in industry, includ- ing transportation, although the prospects point to a steady, if gradual, improvement. To the large mining companies of known financial abil- ity and credit standing we are willing to extend credit according to our regular terms applying in this country, namely, thirty days net or 2 per cent, for cash in ten days. To all trade other 182 INDUSTRIAL MEXICO than that above mentioned our plan is to ask for cash against documents at the border or for an arrangement under which cash is deliv- ered to the manager of our Mexico City oflSce as soon as invoices are delivered to our Mexi- can office. Shirt Manufacturers. We still continue sell- ing in Mexico on a cash basis, either requesting cash with the order or drawing on the customer through a bank on the border line with instruc- tions to deliver shipping papers against pay- ment. Manufacturers of Locks. We have been sell- ing in Mexico for the last few years strictly on a cash basis with very rare exceptions, or we have been selling with bill of lading attached through a bank in the United States on the bor- der, or on a confirmed bank credit. Mexican Bank Finances Shipments I discussed this matter of commercial cred- its with the head of a banking firm in Mexico' City — a man who has had twenty years contin- uous experience in the country and is intimately acquainted with the conditions. I asked him to outline for the benefit of American exporters his CEEDIT AND BANKING 183 metliod of dealing with the problem. His state- ment follows: "As regards terms of payment to be offered the Mexican merchant, it is my opinion that to request him to pay cash with his order is prac- tically the same as inviting him to purchase elsewhere, and when it is realized how difficult it would be to establish a domestic business un- der such conditions, it is apparent why trade with Latin America cannot be built up in that manner. Goods can be shipped with sight draft attached to shipping documents, collection to be effected through a bank, but even under these terms it is very difficult for the merchant here to do business, besides, there always exists the danger to the seller, that the buyer if unscrupu- lous, and when giving his order makes no de- posit to bind the deal, may refuse to take up the draft when presented to him and the seller finds himself with the merchandise on his hands and in a foreign country. ' ' For an American firm to extend direct credit to a merchant in Mexico at present, where be- cause of years of internal strife business can- not yet be considered normalized, is in my opin- ion something that should be undertaken only by firms who are thoroughly familiar with the 184 INDUSTRIAL MEXICO situation, in a position to judge credit risks, and preferably on the ground in order to pro- tect their interests. As few American firms are in this position, it is our desire to assist them by eliminating the element of risk in giving credit, our plan being to finance shipments to merchants here by means of commercial credits. "We are in a position to have confirmed bank- ers' credits opened by our New York and San Antonio correspondents, for account of firms in Mexico wishing to purchase goods in the United States. These credits, of course, are only opened to merchants who are deserving of them and who make the necessary arrange- ments with us. The operation is as follows : "A merchant in Mexico desires to buy a bill of goods for $5,000 from Brown, a merchant in New York City who is not disposed to sell ex- cepting against payment in the United States. On the other hand, the merchant in Mexico wants ninety days from the date on which the shipment is made in New York in which to pay for the goods. If the merchant here makes the necessary arrangements with us, we will open a confirmed banker's credit for this purpose, we requesting our New York correspondent to accept Brown's draft drawn on them at ninety days' sight, with documents attached, covering CREDIT AND BANKING 185 shipment from New York to Vera Cruz, for account of the Mexican buyer. When our New York correspondent receives the authorization from us to open this credit, they will advise Brown to that effect ; that is, that they will ac- cept Brown's ninety-day draft up to $5,000 if presented with corresponding documents at- tached. The buyer will place a time limit within which Brown can present his draft to our New York correspondent, this limit being advised when the credit is opened. "While it is true that Brown does not re- ceive cash for this shipment, he receives a docu- ment that is very easily negotiated, the accept- ing bank discounting it for him if he so desires. As Brown must wait the sixty or ninety days until maturity of the draft before receiviag his money, he can reimburse himself the loss of interest by adding the amount to his invoice or, and preferably, simply quote prices that will cover this extra expense. "It is a general custom that the merchant at whose request a credit is opened pay the bank who authorizes it the corresponding commis- sion, and in the past this has been our practice here, but we find that the Mexican merchant ob- jects to this procedure as he considers that the firm selling goods should extend him direct 186 INDUSTRIAL MEXICO credit. We believe that this stand is taken more out of a question of principle than any- thing else, as it is obvious that regardless of what arrangements are made for paying for this service, the buyer of the goods must ulti- mately pay for it. Nevertheless, we find in practice that it is preferable that the seller of the goods take into consideration this point and quote the Mexican buyer net prices, simply add- ing to the price of his merchandise what it will cost him to discount the bank acceptance and our commission, which we believe in the ma- jority of cases is more than covered by the usual cash discount. "Under this arrangement, the foreign mer- chant can quote prices allowing sixty or ninety days, the only condition being that we pass on the credit, and instead of receiving a note or an acceptance from the buyer, he receives a New York bank's acceptance. We here receive the merchant's note as our security. "The American firm before soliciting an or- der to be handled under this arrangement would, of course, have to consult us in order to ascer- tain if we can issue the credit. This can be done by mail or cable, or if the order is solicited by a salesman in this country, he would first call on us to find out which firms we can extend CREDIT AND BANKING 187 credit to, after whicii he approaches the buy- ers, with the knowledge that he can offer sixty or ninety days from date of shipment in which to pay for their purchases, the only condition being that the buyer's note be made out in our favour. "Another and simpler form of extending credit to merchants here, under our guarantee, is that of drawing thirty to ninety days draft in our favour but direct on the buyer. The mer- chandise is consigned to us and turned over to the Mexican firm against the acceptance of the seller's draft. Under this arrangement, we would simply guarantee to the American firm the payment of their draft at maturity, once accepted. "A merchant buying goods under this ar- rangement would consider that he is being ex- tended direct credit by the seller, as we do not appear in the transaction, our commission be- ing paid by the drawer of the draft, who would of course consider this expense when quoting prices for his merchandise. However, in this case it is also necessary that the American mer- chant first consult us for each and every opera- tion to ascertain whether we can give the neces- sary guarantee." 188 INDUSTRIAL MEXICO Proposed New Banking Law In view of the interest which is being shown in the new law for the regulation of banks and institutions of credit in Mexico, submitted to Congress by President Carranza through the Departnient of Finance, it will be of interest to recall for purposes of comparison some of the provisions of the banking law of March 19, 1897, and at the same time to note the rapid growth and development of the Mexican bank- ing system which followed the enactment of that law. The American commercial attache in Mex- ico, Edward F. Feely, in a comprehensive study of the Mexican banking situation, points out that by the provisions of the law of 1897, banks and institutions of credits were divided into three principal classes, based on the particular functions they would be called on to perform: (1) Banks of emission, which issued bank notes of given denominations, payable at par, on de- mand, and to bearer; (2) mortgage banks, which made loans secured by urban or rural estates, and issued bonds secured by the same guaranty, bearing interest and redeemable under stated circumstances and at given times; (3) banks of promotion, which were specially designed to CREDIT AND BANKING 189 encourage mining, agricultural and industrial enterprises, with the faculty of making pre- ferred loans, unsecured by mortgage, and issu- ing short-time bonds or certificates running for a certain term and payable on a certain date. The enactment of this law was followed by a period of economic and commercial develop- ment, which continued throughout the presi- dency of Gen. Porfirio Diaz, and in which the banking system of the country played a leading part. Rapid Development of Banking From 1897 to 1913 Before the end of 1897 there had been estab- lished in Mexico nine banks of emission, with total assets of $68,565,519, the most important of which were the Banco Nacional de Mexico and the Banco de Londres y Mexico, both in Mexico City, and with branches in the impor- tant cities and towns of the interior. Under the liberal provisions of the law there were established between the years 1897 and 1913 a total of thirty-two banks of emission throughout the Republic, and according to statistics pub- lished by the Department of Finance in 1913 'there were in existence in Mexico at that time 190 INDUSTRIAL MEXICO twenty such banks, with total assets amounting to about $425,500,000. Beginning with a single institution in 1897, with assets of $4,857,000, the importance of mortgage banks increased rapidly, until in 1913 four such banks had been established, with assets totaling about $43,762,000. The banks of promotion found a wide field for the development of their business in the way of financing mining and agricultural enter- prises, and at the end of the fiscal year 1913, the last year for which such statistics are avail- able, the total assets of such banks amounted to over $83,000,000, divided among six institu- tions. In addition to the banks enumerated above there were in active operation at the same time two general banks of deposit, one loan bank for the promotion of agricultural and irrigation enterprises, besides six branches of foreign banks, a number of private banking institutions, and the Monte de Piedad or National Pawnshop under federal control. The latter institution is classed as a bank, inasmuch as it formerly had the faculty of issuing notes and accepting deposits. It is the oldest banking institution in Mexico today. During the turbulent period which followed CREDIT AND BANKING 19l the fall of President Diaz, and the consequent struggle between revolutionary parties to se- cure control of the government, this great sys- tem of banks, with total assets amounting to about $600,000,000, built up and firmly estab- lished by a prosperous existence of seventeen years, was forced out of existence, its assets wiped out, its reserves taken over, and the banks themselves finally declared insolvent. Since 1914, therefore, Mexico has been without banks of any sort within the meaning of the law of 1897. Plans for a Single Bank of Issue In a message to Congress in September, 1918, the Executive attributed his failure to use the authority previously given him by that body to promulgate a law for the establishment of a sole bank of emission to the uncertain state of the money market resulting from the European war and the difficulty of obtaining a loan for that purpose at a fair rate of interest. But the idea prevails among business men and bankers that efforts will be made by the government to finance the new bank of emission without look- ing abroad for the necessary capital. 192 INDUSTRIAL MEXICO Policy of Nationalization This nationalization of banks and teredit in- stitutions would be in accordance with the pol- icy which the present government has mani- fested in its efforts to secure control of the key industries of the country ; but, on the other hand, the sources from which the capital needed for the establishment of the new banks under the proposed law are to be drawn are not ap- parent. In this connection it should be noted that according to the provisions of the new law governing banks in general, no bank may invest in the stock of any similar institution, but only in that of the sole bank of emission. It is also significant as defining the attitude of the government toward the general policy of nationalization, that in submitting the new' law to Congress, the Executive explained that while its provisions are in general accord with those of the banking law of 1897, nevertheless the amendments and additions which now ap- pear have been inspired by the precepts of the Federal Constitution and also by the new orientation which the present government has decided to give to the development of the coun- try financially. Of equal interest in connection with the new ' CREDIT AND BANKING 193 law are the reasons given by the Executive in his letter of submittal for the modifications and amendments in respect of the new classification of banks, of their various functions, and espe- cially of the provisions that are to govern branches of foreign banks which may be estab- lished in the Republic. Under the proposed law the following classi- fication of banks and institutions of credit is made: Sole bank of emission, to be established later in con- formity with the provisions of the Federal Constitu- tion. Mortgage banks, defined as those which shall make loans secured by urban or rural real estate, with the faculty of issuing bonds secured by the same guaran- tee, bearing interest and redeemable under stated cir- cumstances and at given times. Banks of promotion, created especially to facilitate or encourage mining, industrial, and commercial oper- ations, by means of priority loans; granting their guarantee for certain operations and issuing short- term cash or treasury bonds, bearing interest and pay- able on a fixed day. Agricultural banks, which shall make loans and advances for the purchase of equipment or expense of operation, to be secured by the products and crops of the farm, and with the priority of rights conceded by law. 194 INDUSTEIAL MEXICO Petroleum banks, which shall make all kinds of loans and advances for equipment and operation to petroleum exploitation enterprises — such loans to be secured by the actual products of such exploitation, and with the prior rights conceded by this law. Banks of deposit, including those banks which shall have the faculty of carrying on any kind of banking transaction under the conditions determined by this law, with the exception of the issuance of notes, treas- ury bonds, or mortgage bonds. The purpose of this classification is to pro- mote by the specialization of functions a more facile and efficient response to the needs of the different lines of production, and so guarantee ready capital for the promotion of industry, commerce, and agriculture. Hence none of the different kinds of banks is to possess the fac- ulty of carrying on the particular transactions of any of the others. An important modification of the banking law of March 19, 1897, is that under the new law the capital stock of the agricultural banks, the banks of deposit, and of the banks of promotion shall be at least 500,000 pesos ($250,000), and that of the mortgage and petroleum banks at least 1,000,000 pesos ($500,000), these minima having been prescribed after a consideration of the comparative importance of the operations CREDIT AND BANKING 195 to be carried on by each kind of bank, and in order to facilitate the creation of the greatest possible number of agricultural banks, each with a relatively small capital, so as to supply the needs of the agricultural and stock-raising industries in all sections of the country. In view of the present economic condition of the nation, the exhaustion of resources and the decrease in reserve capital, it is not to be ex- pected that financial interests will readily seek investment, nor that bank deposits will increase with rapidity. In order, therefore, that the new banks may begin operations with perfect se- curity it has been judged necessary that their entire capital stock be contributed at once, in- stead of the mere 10 per cent, generally pre- scribed by the commercial code for the estab- lishment of corporations. In order to avoid confusion, and so that the interests of the public may be fully guaranteed, the use of the word "bank" or any equivalent term, for the designation of firms or establish- ments which are not duly authorized credit in- stitutions within the terms of this law, is pro- hibited. A period of six months is given to those firms or establishments, both national and foreign, which have been employing the word "bank," to discontinue its use unless they shall 196 INDUSTRIAL MEXICO §ubmit within that time to the provisions of the new law. The laws now in force prohibiting the issuance of bills, promissory notes, or any other document payable at sight and to bearer by individuals or corporations not duly author- ized so to do are, by the terms of this law, amplified and extended. Among the provisions of the new law which merits special attention is that which prohibits all banks from charging penal interest, whether expressly as such, as commission, or in any other form whatsoever. The special procedure provided by the former law for the collection by banks of their outstanding obligations has been suppressed because, in the opinion of the Exec- utive, it involved the granting of a privilege contrary to the spirit of the Constitution. To seQure a more effective guarantee of de- posits received by the mortgage banks, the new law provides that that portion of such deposits which is secured by discountable documents shall not exceed 25 per cent, of the total deposits of the bank, and that such documents shall be payable within a period not to exceed three in- stead of six months, as fixed by the former law. CREDIT AND BANKING 197 Banks of Promotion In determining the particular kind of opera- tions which shall be carried on by banks of pro- motion, it was thought advisable to limit such banks to the emission of treasury bonds or cer- tificates, and to loans in cash, secured by real estate or by furniture, fixtures and equipment, at terms not to exceed one year, to commercial, mining, and industrial establishments for their promotion and encouragement. The new law, therefore, eliminates the grant- ing of promotion loans to agricultural enter- prises by banks of promotion, such assistance to be furnished iu future by the agricultural banks. The former field of action of banks of promotion is, however, extended to include financial assistance to commercial enterprises. In this way it is hoped that all industries will be assured a source of supply of capital for promotion purposes by applying to ^ the partic- ular kind of bank designated by law for that object. An important modification is embodied in the provision that promotion loans shall not exceed three-fourths of the total amount represented by the sum of the capital stock of the bank plus the value of the treasury bonds or certificates 198 INDUSTRIAL MEXICO in circulation, instead of two-thirds of sncli total amount, as provided by the former law. Banks of promotion will also be obliged to carry on hand in cash at least 50 per cent, of the amount of their deposits, an additional 25 per cent, to be secured by documents bearing at least three first-class signatures and payable at periods not to exceed ninety days, and the bal- ance, 25 per cent., by similar documents pay- able at periods not to exceed six months, or by obligations received as security for promotion loans. Under the proposed law the agricultural banks shall have as their field of operations the granting of loans in cash, secured by real es- tate or chattels, at terms not to exceed five years, to large agricultural and stock-raising enter- prises for their encouragement and develop- ment. They may also make advances in cash at terms not to exceed one year for the equipment and operation of smaller enterprises, such loans to be secured by the crops and products of the farm. Facilities are thus offered to the small farmer to enable him to carry on cultivation of his property for a year, repaying the amount of the loan out of the proceeds of the harvest. Agricultural banks will also be permitted to CREDIT AND BANKING 199 accept deposits under the same terms as the banks of promotion. • A novelty in the new law is the provision providing for the establishment of the petro- leum banks and granting to such institutions facilities for the promotion and encouragement of the petroleum industry. These are made necessary, it is explained, by the rapid increase in importance of this industry in Mexico, and its peculiar requirements as distinguished from those of agriculture and commerce. Banks of Deposit The so-called banks of deposit are not char- acterized by any particular kind of operations. They may carry on any sort of banking busi- ness with the exception of the issuance of notes, mortgage bonds, or treasury bonds, or certifi- cates, but the law provides that the loans for promotion and operation purposes which they may make shall not enjoy the prior rights and protection conceded by law to agricultural banks and banks of promotion. Deposits received by banks of deposit must be secured to the extent of 50 per cent, by gold reserves on hand; 25 per cent, by documents bearing at least three first- class independent signatures, payable at terms 200 INDUSTRIAL MEXICO not to exceed ninety days; and the balance by tlieir capital stock. In stating the reasons which underlie the embodiment in the new law of special provisions to govern the establishment and regulation of foreign banks in Mexico, the principle is laid down that the banking system of the country is of public interest, and that foreign banks and institutions of credit must therefore submit to the national laws. In accordance with this prin- ciple it is provided that foreign banks or other foreign institutions of credit which may wish to establish branches in the Republic, besides complying with the requisites of inscription and registry prescribed by, Article 24 of the Com- mercial Code, must also obtain from the De- partment of Finance the particular concession required by law, according to the kind of bank- ing transactions they intend to carry on; with the understanding that no such branch of a for- eign bank may operate except under a single one of the different classifications enumerated above, even though by virtue of its concession or of foreign laws it might have the right to make transactions which would correspond to those of other kinds of banks specified under this law. It is further provided that the capital of sucli CREDIT AND BANKING 201 branches of foreign banks shall be the same as that prescribed for national banks according to the classification under which they may fall, and that this capital may not be withdrawn from the Republic while the branch exists. In addi- tion, such institutions shall be considered Mex- ican for all purposes, and neither they nor their employes may invoke rights of alienship. It is explained that these dispositions are justified by the consideration that foreign in- stitutions of credit, in so far as their local branches are concerned, ought not to occupy a better position nor enjoy greater privileges than the national banks; but that, at the same time, the unity of the banking system demands that they be placed on an equal footing with the lat- ter in respect of requirements, advantages, and measures of security. It is therefore proposed that foreign banks, their local branches, and any other credit insti- tutions at present existent in the Republic, must submit to the terms of the law within a period of six months, or cease to operate within the Republic, even as private banks. It is there- fore apparent that if the new banking law of Mexico should be adopted in its present form it would inevitably close the doors of every foreign bank in the Republic. Therefore, in 202 INDUSTRIAL MEXICO view of the pressing need pf Mexico for finan- cial support from other countries it is probable that important alterations will be made. Stockholding Restrictions — Federal Inspection — Bank of Emission Of the enactments affecting all banks undef the law now in force, there have been incor- porated in the proposed law those which seemed to be in accord with the fundamental ideas of the new project, and some additions have been made as well. All banks are expressly prohibited from ac- quiring stock in other credit institutions in the Republic, except the stock of the sole bank of emission. It is further provided that if stock should be received as collateral or for any other purpose, such stock may not be represented by the bank holding it in general meetings of stock- holders, the idea being to avoid monopolies and to prevent one bank from exercising pressure on another. This danger, it is said, does not exist in the case of the sole bank of emission, since the government will always possess the majority of the shares and exercise control of it according to the provisions of the Federal Constitution. CEEDIT AND BANKING 203 As hitherto, the Department of Finance will have charge of the fiscalization of all banks and institutions of credit, with unlimited power to inspect all books, papers, and transactions of the banks, as well as to ask whatever informa- tion may be necessary to a full knowledge of the state of their affairs. This work will usually be done by inspectors or auditors, act- ing without fixed assignment in order thus to avoid all probability of connivance. The func- tion of these auditors will be merely to inves- tigate the affairs of the bank, and they will have no authority to intervene therein, nor to make any decision on their own initiative, but will simply report the result of their investigations to the Department of Finance so that the neces- sary corrective measures may be taken. If a bank should fail to comply with any of the requirements or conditions prescribed in this law for the protection or benefit of the pub- lic, and if such failure is not of a nature to warrant the cancellation of the concession, the Department of Finance, after hearing the inter- ested bank, may order it to suspend any or all of its operations until such time as it may have complied with the requirements or conditions of the law. The power of issuing notes of a fixed value, 204 INDUSTEIAL MEXICO payable at sight to the bearer, shall belong to a single bank under Federal control, as pro- vided by Article 28 of the Constitution of Feb- ruary 5, 1917. The operation of this bank shall be governed exclusively by a special law to be promulgated for that purpose. Other Provisions Among the other important provisions of the new law that will be of interest to foreign banks which may be considering the establishment of branches in Mexico, as well as to those institu- tions at present engaged in the banking busi- ness there, are the following: Art. 10. The establishment of two distinct insti- tutions of credit under the same concession shall not be authorized, nor shall authority bie given to a bank for the omission of various kinds of securities which by their nature and within the meaning of this law may correspond to institutions of different classifica- tions. Art. 11. Under no circumstances shall concessions for the establishment of credit institutions be granted until the applicants therefor have deposited in the National Treasury or in the sole bank of issue stock or bonds of the proposed bank, or bonds of public debt, whose nominal value shall be at least 20 per cent. CREDIT AND BANKING 205 of the sum which the new bank is required to have on hand fol- its esta*blishment. (See Art. 14, Sec. "d.") This deposit shall be returned as soon as the bank may have begun operations. Art. 14. Sec. "b." The capital stock of corpora- tions organized in the Republic for the exploitation of credit institutions shall never be less than 500,000 pesos ($250,000 United States currency) for agricul- tural banks, banks of deposit, and banks of promo- tion; and never less than 1,000,000 pesos ($500,000 United States currency) ""for mortgage banks, and pe- troleum banks. Sec. "d." No such corporation shall be estab- lished without having its capital stock entirely sub- scribed and available in cash. Sec. "f . " The reserve fund so-called shall be made up of the accumulation of 10 per cent, of the annual net profits until such time as it equals one-third or more of the amount of capital invested. Sec. "g." In general assemblies of stockholders, the minority shall have the right to name a represen- tative with the same powers as those prescribed for similar officers by the commercial code, and such rep- resentative shall have in addition the power to call a general meeting and to inform the Department of Finance of any irregularities or infractions of the law governing credit institutions, or of the criminal code. Art. 16. Institutions established in foreign coun- tries which issue securities payable to bearer shall not maintain in the Republic agencies or branches for the 206 INDUSTRIAL MEXICO issuance or redemption of such securities, nor agencies for the reception of deposits. Art. 23. No individual or company not duly au- thorized so to do by the terms of this law shall have the power to issue bills, notes, or any other document bearing the promise to pay in cash to bearer at sight. Constructive Help Needed by New Exporters In the way of constructive assistance at home it is interesting to know that British banking interests are organizing a bank of discount for foreign trade which will also undertake to guar- antee or insure foreign credits, keeping closely in touch with conditions in foreign markets through resident representatives. It would seem that the establishment of such an institu- tion in the United States would not only be a profitable investment, but would also be of the greatest assistance to our exporters; especially to those who are not experienced in foreign trade, and who hesitate to enter the field di- rectly for lack of acquaintance with banking methods and credit conditions abroad. Its serv- ices could be made especially valuable in respect to Mexico, owing to the anomalous situation which prevails there. CHAPTER X NATIONAIi DEBT Paper money. Items in national debt. Unpaid in- terest. Railway debt. International Bankers Com- mittee. It is an indisputable fact that from the found- ing of the Mexican Republic to the present ad- ministration there has never been any tendency on the part of the government to repudiate any of its financial obligations. The late T. W. Osterheld, who was an authority on Mexican finances, points to the history of the first two loans of the Republic as proof of its integrity. The Mexican Government, in assuming the re- sponsibility of the Spanish debt, received $11,- 000,000 for a $30,000,000 loan, paid $29,500,000 for the service of the loan and finally in 1890 extinguished this debt by the payment of over $62,000,000. A more recent example, taken from the present administration, may be seen in the conversion of the paper money issued by the Provisional Government during the first few months of its existence at Mexico City, and later at Vera Cruz, in order to maintain the Army 207 208 INDUSTEIAL MEXICO ■while the new government was in formation. This issue amounted to, in all, about 670,000,000 pesos, the larger part of which was redeemed as taxes, railroad fares, etc., and the balance amounting to about 50,000,000 pesos being con- verted into gold certificates, payable in five years, on the basis of five cents gold for each peso of Constitutional paper, which was greatly in excess of its value at that time. From 1912 to 1916 Mexico had one revolu- tion after another; commencing with the over- throw of Diaz by Madero and the final success of Gteneral Carranza. "On only two occasions during this period did Mexico appeal for for- eign capital," writes Osterheld. "Once in 1912, when the government under President Ma- dero floated a $10,000,000 41/3 per cent, gold loan, through Messrs. Speyer & Co., in New York, and Speyer Brothers in London. In 1913, during the administration of Huerta, there was authorized an issue of ten-year 6 per cent, gold bonds in an amount of £16,000,000, which could be increased with the approval of the bankers to £20,000,000. This loan was to be secured by 38 per cent, of the import and export duties of Mexico, and in the agreement with the bank- ers it was stipulated that no further external loan should be made for a period of two years. NATIONAL DEBT 209 The loan had for its object the repayment of the Madero loan made by Speyer & Co., and Speyer Brothers (about 41,000,000 pesos), to guarantee the certificates issued by the National Railways of Mexico for interest not paid on its bonds, to cover certain guarantees to the banks of issue, for the guaranteeing of railroad sub- ventions, and for providing equipment for the army, purchase of the Mexican National Pack- ing House, and the deficit existing in the budget. Under contract with the bankers in Paris, £6,000,000 of these were placed under the date of June 8, 1913, and further amounts were of- fered for subscription in Mexico City by the secretary of the treasury by decree and au- thorization granted by the Mexican Congress, under the stipulated conditions as agreed with the bankers in Paris. The legality of £700,000 of this issue brought out in London by Renter & Co. has been questioned." In 1914 the loss of income caused by the revo- lution resulted in the non-payment of interest on all bonds with the exception of a few local railway bonds, such as those of the United Rail- ways of Yucatan. The military campaigns of General Carranza were financed entirely with paper money. The first issue of this, ordered by decree dated April 26, 1913, was for 5,000,- 210 INDUSTRIAL MEXICO 000 pesos, known as the Monclova issue. In December, 1913, this was increased by 20,000,000 pesos, and in February, 1914, it was raised again by 30,000,000 pesos. The amounts issued against this last authorization totaled 25,000,000 pesos. When the Constitutionalist Army arrived in Mexico City in August, 1914, it was found ex- pedient to convert the previous issues of paper money, and at the same time make a larger issue to meet the increased expenses necessitated by the occupation of the southern part of the coun- try. Therefore, on November 19, 1914, an is- sue of 130,000,000 pesos was sanctioned, in order to convert the Monclova and Constitutionalist issues, and at the same time provide money for the campaign against Villa. About 43,000,000 pesos were printed in Mexico City and were known under the name of the "Provisional Gov- ernment of Mexico Issue." The printing con- tinued in Vera Cruz, the issue being increased to 200,000,000 pesos and later to 250,000,000. It is estimated that the total amount of paper money issued during the first and second pe- riods of the revolution was 671,954,221 pesos. During this period there were several issues of paper money made by such generals as Fran- cisco Villa, Alvaro Obregon and Pablo Gon- NATIONAL DEBT 211 zalez, wMle the revolution was still in its early- stages, and under authorization granted . by General Carranza. Villa and at least one other general printed paper money greatly in excess of that authorized. As already pointed out, re- demption of the Vera Cruz issue was made in the form of railway fares, taxes, etc., and the balance, amounting to 50,000,000 pesos, was converted into gold certificates, payable in five years, on the basis of five cents gold for each peso of Constitutional paper. All other author- ized issues were duly withdrawn and exchanged in part, leaving at present only about 2,000,000 pesos outstanding, which are under care of the Monetary Commission pending conversion. The final issue of paper money, that which is now outstanding, was the paper known as In- falsifieables (non-counterf citable) or Carranza bills. These were printed in New York by the American Bank Note Company in the denomi- nations of five, ten, twenty, fifty and hundred pesos bills, in an amount of 450,000,000 pesos. It was found necessary, however, to print in Mexico City, small bills of two and one peso notes, as well as five, ten and twenty cehtavo denominations, which increased the total issue to nearly 540,000,000 pesos. Of this amount, only 400,000,000 were placed in the hands of the 212 INDUSTEIAL MEXICO public, half of which were redeemed the first year through the medium of railroad fares, freight fares, and import and export duties. In 1916 Mexico was placed on a gold and sil- ver basis. Since then, redemption has contin- ued steadily through the medium of import and export duties, which also include all oil .shipped from Mexico, so that today it has been con- servatively estimated that not more than 80,- 000,000 pesos are outstanding. Eedemption is taking place at the rate of approximately 100,- 000 pesos daily, which are burned in the Public Square in Mexico City. It is expected that the balance outstanding will be entirely redeemed during 1919-20. Should this be found imprac- ticable before the entire amount is redeemed, it is expected that some such system as was adopted in the case of the Vera Cruz paper will be used. The present market value of in- falsificables is three cents per peso (United States currency) but in view of the previous acts of the Mexican Government it is assumed that the final redemption of the small amount of bills which will be outstanding will be at ten cents United States gold, their issuing rate. At that rate the amount now involved does not exceed $8,000,000 United States currency. During the revolution, the government found NATIONAL DEBT 213 occasion to borrow money from the Banks of Issue, the total of which is stated to be about $20,000,000. At the same time, it must be borne in mind that there is a large amount due to the government employes for back salaries, and that a certain amount will have to be paid for prop- erty destroyed during the revolution, including the damage done to the various railway lines. The subjoined table shows in detail the con- stitution of the national debt ; with interest ap- proximated to 1919 : Consolidated 3 Per Cent. Intekiob Debt, 1885 Bonds in circulation $ 21,215,462.00 Interest due 3,182,319.00 Redeemable 5 Per Cent. Inteeiob Debt, 1894 (First and Second Series) Bonds in circulation 45,395,550.00 Interest due 11,348,887.00 City of Mexico 5 Per Cent. Foreign Loan, 1889 Bonds in circulation 6,762,907.00 Interest due 1,690,726.50 Foreign 5 Per Cent. Loan, (1899) Bonds in circulation 48,603,414.00 Interest due 12,150,853.50 Foreign 4 Per Cent. Loan, (1904) Bonds in circulation 37,037,500.00 Interest due 7,407,500.00 Foreign 4 Per Cent. Loan, (1901) Bonds in circulation 51,065,246.00 Interest due 10,213,049.00 Foreign 6 Per Cent. Treasury Bonds, 1913 (Series "A" only) Bonds in circulation 30,000,000.00 214 INDUSTRIAL MEXICO Interest due $ 9,000,000.00 Due on "Religious Fund of California" five years unpaid 107,627.47 Madero loan 50,000,000.00 Interest due (about) 5,000,000.00 Other Bonds Guaranteed iy Mexican Govern- ment : Caja de Prestamos 35 year 4% per cent. Sink- ing Fund 25,719,790.00 Interest due 5,786,952.75 Mexican National Packing Co. 6 per cent. 1st and 2nd mortgage Gold Bonds 4,500,000.00 Interest due 1,350,000.00 State of Vera Cruz, 5 per cent., 1901 588,000.00 Interest due . 147,000.00 State of Vera Cruz, 5 per cent., 1006 332,000.00 Interest due 83,000.00 State of Tamaulipas, 5 per cent., 1902 .- 449,750.00 Interest due 112,437.50 State of Tamaulipas, 5 per cent., 1906 399,800.00 Interest due 99,950.00 State of Sinaloa, 5 per cent., 1906 233,350.00 Interest due 58,337.50 Total $350,181,047.47 In addition to the above items, the total funded debt of the National Railways of Mex- ico and subsidiary lines on June 30, 1918, amounted to $238,740,393, on which there is ac- cumulated interest up to January 1, 1919, of $51,824,139 (dollars). International Bankers Committee Leading American, French and British bank- ers have united, with the knowledge of their re- NATIONAL DEBT 215 spective governments, to inform themselves "as fully as possible as to existing conditions in Mexico with a view to such positive action as may be taken whenever circumstances permit." Through the International Bankers Commit- tee on Mexico, the formation of which was an- nounced Feb. 24, 1919, they will act jointly for the protection of the iuterests of holders of Mexican Government, railway and industrial securities. J. P. Morgan is chairman of the committee. It is known that the committee was launched after an extensive series of conferences both here and abroad, to some of which representa- tives of the three governments are believed to have been invited. The bankers represented on the committee recognize that they virtually con- trol the financial markets which any Mexican Government in quest of funds would have to visit. Thomas Cochran, of J. P. Morgan & Co., act- ing for Mr. Morgan, issued a statement regard- ing the International Bankers Committee, as follows : "The following international committee has been constituted for the purpose of protecting the holders of securities of the Mexican Eepub- lic and of the various railway systems of Mex- 216 INDUSTRIAL MEXICO ico. The committee will be prepared to take such further steps as may seem wise in order to afford counsel and aid to investors who hold interests in Mexico : J. P. Morgan, chairman, of J. P. Morgan & Co. John J. Mitchell, president Illinois Trust & Saving Bank, Chicago. Walter T. Eosen, of Ladenburg, Thalmann & Co. Chas. H. Sabin, president Guaranty Trust Company, New York. Mortimer L. Schiff, of Kuhn, Loeb Co. James A. Stillman, chairman of the board. National City Bank, New York. James N. Wallace, president Central Union Trust Co., New York. Albert H. Wiggin, chairman of the board, Chase National Bank, New York. Robert Winsor, ,of Kidder, Peabody & Co., Boston. Laurence Currie, of Glyn Mills, Currie & Co., London. Sir Clarendon Hyde, of S. Pearson & Son, Limited, London. E. R. Peacock, chairman of the bondholders' committee of the Mexican Tramways and the NATIONAL DEBT 217 Mexican Light and Power group of companies, London. Vivian H. Smith, of Morgan, Grenfell & Co., London, Vincent W. Yorke, chairman of the Mexican Eailway Co., Ltd., London. William d'Eichthal, of Mirabaud & Co., Paris. Georges Heine, director of the Banque de 1 'Union Parisienne. Andre Honnorat, member of the Commission for the Protection of French Holders of Mexican Securities. Jacques Kulp, auditor of the Banque de Paris et des Pays-Bas, Paris. Joseph Simon, Inspector of Finance, general delegate of the Commission for the Protection of French Holders of Mexican Securities. "This committee is not yet prepared to an- nounce a definite program of procedure, but in general its functions will be to inform itself as fully as possible as to existing conditions in Mexico with a view to such positive action as may be taken whenever circumstances permit. Especial care has been taken as to the composi- tion of the committee upon a broad international basis, so as thereby to insure so far as may be joint and united action by security holders in 218 INDUSTRIAL MEXICO all three countries concerned; namely, tlie United States, Great Britain and France. "The United States State Department at "Washington and the foreign offices respectively of the British and French governments have been advised of the formation of this commit- tee. "Each American member has named an alter- nate to serve in case of need, and the following have been appointed to serve as such alternates : John H. Fulton for James A. Stillman. Benjamin S. Guinness for Walter T. Kosen. Jerome J. Hanauer for Mortimer L. Sohiff. E. D. Hulbert for John J. Mitchell. Thomas W. Lamont for J. P. Morgan. Frank W. Eemiek for Eobert Winsor. Francis H. Sisson for Chas. H. Sabin. Edward E. Tinker for Albert H. "Wiggin. J. Y. G. Walker for James N. Wallace. Mr. Lamont is also a member of the National Association for the Protection of American Eights in Mexico, and will probably serve as a link between the two committees. Although they will remain independent of each other, it is understood that they will co-operate. The National Association is composed chiefly of in- dustrial men and comprises only Americans. The bankers' committee will gather authorita- NATIONAL DEBT 219 tive statistics about foreign investments in Mex- ico, which are now loosely estimated at between $1,000,000,000 and $2,000,000,000, Step Toward Rehabilitation Rafael Nieto, then acting Minister of Fi- nance of Mexico, visited New York in February and March, 1919, on a mission of "inquiry" to learn the terms on which the present govern- ment .of Mexico can get banking assistance in the United States for the rehabilitation of the national and railway debt. Mr. Nieto estimated the national debt oustanding at $250,000,000, and added that the railway debt guaranteed by the government would bring the total up to $370,000,000. All estimates of the bonded indebtedness of Mexico disagree and absolutely accurate figures are unavailable. Statements issued by the Car- ranza administration, for instance, always ig- nore the debts incurred by Huerta. CHAPTER XI MEXICAN CONSTITUTION OF 1917 Effect upon foreign investments. Taxes. Decree of February 19, 1918. American Government pro- tests. President Wilson's address to Mexican editors. Protests from British and French Governments and replies of Mexican Government. In 1917 a constitutional assembly in Mexico adopted a constitution altering Article 27 of the Constitution of 1857 to read as follows : Art. 27. The ownership of lands and waters within the limits of the national territory is vested originally in the nation, which has had and has the right to transmit title thereof to private persons, thereby con- stituting private property. Private property shall not be expropriated except for cause of public utility and by means of indemnifi- cation. Legal capacity to acquire ownership of lands and waters of the nation shall be governed by the follow- ing provisions: 1. Only Mexicans by birth or naturalization and Mexican companies have the right to acquire owner- ship in lands, waters, and their appurtenances, or to obtain concessions to develop mines, waters or min- 220 MEXICAN CONSTITUTION OF 1917 221 eral fuels in the Republic of Mexico. The nation may grant the same right to foreigners, provided they agree before the Department of Foreign Affairs to be con- sidered Mexicans in respect to such property, and accordingly not to invoke the protection of their gov- ernments in respect to the same, under penalty, in case of breach, of forfeiture to the nation of property so acquired. Within a zone of 100 kilometres from the frontiers, and of fifty kilometres from the sea- coast, no foreigner shall under any conditions acquire direct ownership of lands and waters. Legislation from 1884 to 1917, — whose au- thenticity and binding force have never been questioned, — has consistently upheld the prin- ciple that the owner of the surface is likewise the owner of all mineral fuels in the subsoil. Article 10 of the Mexican Mining Law of No- vember 22, 1884, states that "the following sub- stances are the exclusive property of the owner of the land, who may, therefore, develop and enjoy them, without the formality of claim (de- nuncio) or special adjudication . . . petroleum and gaseous springs, etc." The mining law of June 4, 1892, states that "the owner of land may freely work, without a special franchise in any case whatsoever, the following substances: mineral fuels; oils and mineral water; etc." 222 INDUSTEIAL MEXICO The mining law of November 25, 1909, ef- fective January 1, 1910, states, in Article 2, that "the following are the property of the owner of the soil: I. Ore bodies or deposits of mineral fuels, of whatever form or variety, etc." In reliance upon these laws, American com- panies have purchased and leased petroleum tracts in Mexico, and by expenditure of over $300,000,000 in lands, leases, camps, pipe lines, pumping stations, wharves, tank steamers, etc., have created, from the bare exude indications which led to their investment, an industry of great proportions, and of enormous significance to the United States. The provision, therefore, in Article 27 of the 1917 constitution vesting the "legal ownership" of petroleum in the nation, "seems to indicate," in the language of the protest addressed by the United States to Mexico under date of April 2, 1918, "an intention to separate the ownership of the surface from that of the mineral deposits of the subsurface." Were this attempt to be carried into effect, there would necessarily re- sult the confiscation of legitimately acquired rights in oil fields and mines. The constitution of 1917, however, if properly interpreted, offers a safeguard against such action. Article 14 thereof provides : MEXICAN CONSTITUTION OF 1917 223 Art. 14. No law shall be given retroactive effect to the prejudice of any person whatso- ever. Prior to the presentation of his credentials as ambassador to the de facto Mexican Govern- ment on February 20, 1917, the Hon. Henry P. Fletcher was assured by the Mexican Minister for Foreign Affairs that Article 14 guaranteed Americans against confiscation of their proper- ties. However, on February 19, 1918, under a general authorization by Congress to legislate on matters of finance, the following executive decree was issued: Art. 1. There is hereby established a tax on oil- bearing lands and on oil contracts executed prior to May 1, 1917, covering leases of lands for the develop- ment of hydrocarbons or permits to undertake such development whenever a consideration has passed. Art. 2. Annual rentals stipulated in the contracts to which reference is made in Article 1 hereof are taxed as follows : A. Eentals of five pesos per annum per hectare, or less, 10 per cent, of their amount. B. Rentals of more than five pesos and of less than ten pesos per annum per hectare, 10 per cent, on the first five pesos, and 20 per cent, on the balance. C. Eentals of over ten pesos per annum per hec- tare, 10 per cent, on the first five pesos, 20 per cent. 224 INDUSTEIAL MEXICO on the next five pesos, and 50 per cent, on any re- mainder above 10 pesos. Art. 3. All royalties stipulated in oil contracts are taxed 50 per cent, of their amount, in cash or in kind, according to the decision of the Department of Fi- nance. Art. 4. Claims (fundos) operated by the owners of the surface are assessed an annual rental of five pesos per annum per hectare, and a royalty of 5 per cent, of the output, in cash or in kind, according to the decision of the department in each case. Art. 5. The Department of Finance shall notify taxpayers during the last two weeks of each two- monthly period whether they are to pay the royalty in- curred for the period of two months ending with the said two weeks in cash or in kind. Art. 6. Taxes assessed under Article 2 shall be paid in the local Stamp Tax Bureau having jurisdic- tion over the lands in question; and in case the said lands appertain to several jurisdictions, payment shall be made in the bureau designated by the Department of Finance, after consulting the taxpayer. Such pay- ment shall be made in advance during the first two weeks of each period of two months. Art. 7. Eoyalties assessed in cash shall be paid in the bureaus fixed by the above article on the dates therein prescribed, covering two-monthly periods in advance. Art. 8. Payment of the amounts mentioned in Articles 2, 3 and 4 hereof shall be made by means of MEXICAN CONSTITUTION OF 1917 225 special stamps bearing the legend: "Rentes Petro- leras. ' ' Art. 9. Persons liable to the taxes established by this law shall file during the first two weeks of each two-monthly period a statement (manifestacion) on the forms to be issued by the General Stamp Tax Bureau (Direccion General del Timbre) setting forth the ratals, output, and other data necessary for the assessment of the taxes. These statements shall be delivered at the stamp tax bureaus mentioned in Ar- ticle 6 hereof. Art. 10. Transfers of contracts taxed under this law shall be communicated to the bureaus mentioned in Article 6 hereof, within thirty days following their execution. Apart from this obligation . on the part of the contracting parties to give notice, the notaries public before whom such operations are executed shall give immediate notice thereof to the General Stamp Tax Bureau. Art. 11. Royalties, or portions thereof, when pay- able in kind, shall be delivered in any of the storage stations belonging to the operating company or indi- vidual, at the choice of the Department of Finance, which shall designate the place of delivery at the same time as it indicates the form of payment. Art. 12. Whenever royalties, or portions thereof are payable in cash, their amount shall be determiued by taking the fiscal value of the products at the port of shipment as fixed by the two-monthly schedules of the Department of Finance, after deducting the cost 226 INDUSTEIAL MEXICO of transportation by pipe-line, according to the dis- tance, from the point of production to the port of ishipment and the average schedule for the public au- thorized by the Department of Industry, Commerce and Labour for the pipe-lines of that region. The Tax Bureau of the Department of Finance shall be required to inform opportunely the local Stamp Tax Bureaus of the valuations above mentioned, so that these bureaus may check the statements. Art. 13. Oil-bearing land paying no rental at pres-- ent shall be assessed five pesos per annum per hectare, and lands paying no royalties shall be assessed 5 per cent, of the output. The payments mentioned in this article shall comply with the same conditions as are established by this law for other taxpayers. Art. 14. Owners of lands desiring to develop pe- troleum in the subsoil on their own account and who have made no oil contract, and the last assignees of the right of development under contracts mentioned in Article 1 of this law, shall file a statement within three months following the promulgation of this de- cree, enclosing certified copies of their contracts of purchase, lease or otherwise, with the Department of Industry, Commerce and Labour, which department shall revise the statements, rejecting those contain- ing data not duly certified. On the expiration of this time, all petroleum lands not registered in the form prescribed in this article shall be deemed open to entry (vacante) ; and claims thereon and the de- velopment thereof shall be governed by regulations MEXICAN CONSTITUTION OF 1917 227 to be issued on the subject, which regulations shall determine what persons are liable to the taxes assessed hereunder. Art. 15. Contracts mentioned in this law should be executed by public deed, and contracts under private deed shall be valid only when the formality of a pub- lic deed is not made necessary by the size of the opera- tion, and when by other unquestionable methods of proof it is shown that they have been executed in the form of a private deed, on the dates and under the terms indicated. Art. 16. The royalties established by this law, the portions of royalty fixed by Article 3 hereof, the tax on rentals fixed in Article 2 and the other rentals established hereunder shall be delivered in local Stamp Tax Bureaus by the operators or the last assignees of the right of development, who, on making their pay- ments to intermediate assignees, or to the owners, shall deduct the proportional part of the taxes to be borne by either of these, so that the federal rentals and royalties shall be distributed in the same propor- tion as the rentals and royalties at present established on oil-bearing lands in the several oil contracts now in force. Art. 17. Taxes not paid within the period fixed by the law shall pay a surcharge of 10 per cent, for each month of deferred payment. Art. 18. The revenue derived from the taxes lev- ied hereunder shall be distributed as follows : Sixty per cent, to the Federal Government. 228 INDUSTEIAL MEXICO Twenty per cent, to the State Government within whose jurisdiction is located the land in question. Twenty per cent, to the Municipality within whose jurisdiction is located the land in question. When the lands are situated in two or more munici- palities, or in two or more States, the Department of Finance shall distribute the tax, taking into considera- tion the amount of land comprised within each juris- diction, the situation of the wells, their output and other pertinent facts. Art. 19. Infractions of the provisions of this law shall be punished by fines varying from fifty to 1,000 pesos, according to the gravity of the offence. This shall not bar the institution of judicial proceed- ings if a criminal offence shall have been committed. This law shall take effect from the date of its pro- mulgation. (Signed) V. Carranza. February 19, 1918. Against this decree, the United States, Great Britain, Holland and France made protest. The American Government's protest was pub- lished in the Official BuUetin of June 29, 1918, as follows : MEXICAN CONSTITUTION OF 1917 229 Text of Fletcher Note of Protest Agamst Tax on Oil Lands in Mexico Owned by United States Citizens The State Department's attention has been called to press comment published in Mexico to the effect that Ambassador Fletcher's note of April 2, 1918, respecting the Mexican decree of February 19, 1918, establishing a tax on oil lands, is inconsistent with the President's ad- dress to the Mexican editors now visiting this country. The United States Government would have appreciated being asked for its consent to the publication of this note inasmuch as this procedure is usually followed in diplomatic deal- ings between friendly nations. Such consent would of course have been readily given if the Mexican Government had intimated that it be- lieved the note should be published. An examination of the note proves that all that the United States asks for its citizens who have made investments in Mexico relying on the good faith and justice of the Mexican Gov- ernment and Mexican laws is justice and fair dealing. There is no disposition on the part of the United States Government to interfere in the internal affairs of Mexico. However, the seizure of property at the will of the sovereign 230 INDUSTEIAL MEXICO without due legal process equitably adminis- tered and without provision for just- compen- sation has always been regar'ded as a denial of justice and a cause for diplomatic representa- tion. President Wilson's Address The President in his speech referring to Mex- ico's future said: "It must depend upon every nation that has any relations with her, and the citizens of any nation that has relations with her, keeping within the bounds of honour and fair dealing and justice, because so soon as you can admit your own capital and the capital of the world to the free use of the resources of Mexico it will be one of the most wonderfully rich and prosperous countries in the world." The President further pointed out that the basis for the future relations of nations was trust, and said: "As long as there is suspicion there is going to be misunderstanding, and as long as there is misunderstanding there is going to be trouble. If you can once get a situation of trust then you have got a situation of permanent peace. ' ' MEXICAN CONSTITUTION OF 1917 231 Note of April 2 The United States always desires to accord to the Mexican Government and people justice and fair dealing, and it is confident that it will be accorded the same justice and the same fair dealing in return. The note of April 2 is as follows : Mexico, April 2, 1918. Excellency: The decree of the 19th of February, 1918, which was published in the Diario Oficial on the 27th of February last, establishing a tax on oil lands and on oil contracts executed prior to the 1st of May, 1917, etc., has been brought to the attention of my govern- ment, and I am under instruction to state to Your Excellency that my government has given most care- ful consideration to the effect which this decree, if carried into operation, will have upon American in- terests and property rights in Mexico. Provisions of the Decree The said decree provides for the imposition of cer- tain taxes on the surface of oil lands, as well as on the rents, royalties, and production derived from the exploitation thereof. It is noted also that among the provisions for the collection of such taxes is one re- 232 INDUSTEIAL MEXICO quiring that payment in kind shall be delivered to the Mexican Government at the storage stations of the operators. Articles IV, XIII, and XIV of the said decree seem to indicate an intention to separate the ownership of the surface from that of the mineral deposits of the subsurface, and to allow the owners of the surface a mere preference in so far as concerns the right to work the subsoil deposits upon compliance with certain conditions which are specified. While the United States Government is not disposed to re- quest for its citizens exemption from the payment of their ordinary and just share of the burdens of taxa- tion so long as the tax is uniform and not discrimina- tory in its operation, and can fairly be considered a tax and not a confiscation or unfair imposition, and while the United States Government is not inclined to interpose in behalf of its citizens in case of expropria- tion of private property for sound reasons of public welfare, and upon just compensation and by legal proceedings before tribunals, allowing fair and equal opportunity to be heard and giving due consideration to American rights, nevertheless the United States cannot acquiesce in any procedure ostensibly or nom- inally in the form of taxation or the exercise of em- inent domain, but really resulting in the confiscation of private property and arbitrary deprivation of vested rights. MKXICAN CONSTITUTION OF 1917 233 Not a New Principle Your Excellency will understand that this is not an assertion of any new principle of international law, but merely a reiteration of those recognized principles which my government is convinced form the basis of international respect and good neighbourhood. The seizure or spoliation of property at the mere will of the sovereign and without due legal process fairly and equitably administered, has always been regarded as a denial of justice and as according internationally a basis of interposition. My government is not in a position to state definitely that the operation of the aforementioned decree will, in effect, amount to confiscation of American interests. Nevertheless, it is deemed important that the Govern- ment of the United States should state at this time the real apprehension which it entertains as to the possible effect of this decree upon the vested rights of American citizens in oil properties in Mexico. The amount of taxes to be levied by this decree are in themselves a very great burden on the oil industry, and if they are not confiscatory in effect — and as to this my government reserves opinion — ^they at least indicate a trend in that direction. It is represented to the State Department that the taxation borne by the oil fields of Mexico very greatly exceeds that im- posed on the industry anywhere else in the world. Moreover, it would be possible under the terms of the decree, in view of the fact that the Mexican Govern- 234 INDUSTRIAL MEXICO ment has not storage facilities for the taxes or roy- alties required to be paid in kind, by storing the same in the tanks of the operators, to monopolize such stor- age facilities to the point of practical confiscation thereof until emptied by order of the Mexican Gov- ernment or by the forced sale of the stored petroleum to the operators at extravagant rates. Surface and Subsurface Bights It is, however, to the principle involved in the ap- parent attempt at separation of surface and subsur- face rights under this decree that my government desires to direct special attention. It would appear that the decree in question is an effort to put into effect as to petroleum lands Paragraph 4 of Article 27 of the Constitution of May 1, 1917, by severing at one stroke the ownership of the petroleum deposits from the ownership of the surface, notwithstanding that the Constitution provides that "private property shall not be expropriated except by reason of public utility and by means of indemnification." So far as my government is aware no provision has been made by Your Excellency's Government for just compensa- tion for such arbitrary divestment of rights nor for the establishment of any tribunal invested with the functions of determining justly and fairly what in- demnification is due to American interests. Moreover, there appears not the slightest indication that the separation of mineral rights from surface rights is a MEXICAN CONSTITUTION OF 1917 235 matter of public utility upon which the right of ex- propriation depends, according to the terms of the Constitution itself. In the absence of the establish- ment of any procedure looking to the prevention of spoliation of American citizens and in the absence of any assurance were such procedure established, that it would not uphold in defiance of international law and justice the arbitrary confiscations of Mexican au- thorities, it becomes the function of the Government of the United States most earnestly and respectfully to call the attention of the Mexican Government to the necessity which may arise to impel it to protect the property of its citizens in Mexico divested or in- juriously affected by the decree above cited. The investments of American citizens in the oil properties in Mexico have been made in reliance upon the good faith and justice of the Mexican Government and Mexican laws, and my government cannot believe that the enlightened government of a neighbouring Eepublic at peace and at a stage in its progress when the development of its resources so greatly depends on its maintaining good faith with investors and operators, whom it has virtually invited to spend their wealth and energy within its borders, will disregard its clear and just obligations toward them. Acting under instructions, I have the honour to request Your Excellency to be good enough to lay before His Excellency, the President of Mexico, this formal and solemn protest of the Government of the United States against the violation or infringement 236 INDUSTEIAL MEXICO of legitimately acquired American private property rights involved in the enforcement of the said decree. Accept, Excellency, the renewed assurance of my highest consideration. Henry P. FLiETCHER. The American Government's note was deliv- ered on April 4. On May 18, 1918, the Carranza Government issued a decree extending to July 31, 1918, the term set in the law on oil-bearing lands and oil contracts for the filing of state- ments. On July 8, 1918, a decree regulating Article 14 of the decree of February 19, 1918, was issued, further amendments being made on August 8, 1918. On July 31, 1918, the decree of February 19 was re-issued with slight altera- tions. On August 12, 1918, a new decree was issued by President Carranza under extraordinary powers in the Department of Finance conferred upon him by Congress, containing the following provisions : Art. 1. Petroleum claims which have been sur- veyed and in which capital has been invested for oil exploration or development, and statements regarding which have not been filed up to August 15, 1918, as prescribed in the decree of July 31, 1918, shall not be open to entry. MEXICAN CONSTITUTION OF 1917 237 Art. 2. The right to the petroleum development of these properties shall be acquired by means of special contracts to be executed with the Department of Industry, Commerce and Labour, in conformity with regulations to be issued on the subject, until such time as the organic law contemplated in Article 27 of the constitution shall determine the method of granting of franchises (eoncesiones) on this subject. Art. 3. The present holders or operators of such properties who shall not have filed the statements required in the decree mentioned above shall continue to hold and operate the said properties on payment into the Federal Treasury of an annual rental of five pesos per hectare and of a royalty of 5 per cent, of the output, until such time as the basic terms are pub- lished for the execution of the respective contracts. But if the interested parties shall prove that they are in possession of the said properties under contracts executed prior to May 1, 1917, they shall continue to hold and operate such properties subject to the obliga- tion to pay the tax imposed on petroleum contracts by the Decree of July 31, 1918. Art. 4. The present operators of such properties may continue to develop work already begun and au- thorized, after compliance with the requirements laid down in the foregoing article; but they shall not be permitted to undertake new work until after the execu- tion of contracts granting the right to develop such claims. Art. 5. All persons liable to the taxes established 238 INDUSTRIAL MEXICO under Article 2 hereof shall make their payments in accordance with Articles 6, 7, 8, 9, 10 and 11 of the decree aforementioned (July 31). Art. 6. Payment of taxes levied hereunder shall give the payers thereof the preferential right to the execution of the contracts to which Article 2 hereof refers. Art. 7. Failure to make payment of the taxes levied under Article 3 hereof shall result in the for- feiture of the preferential right acquired through such payment, and shall cause the claim in question to be declared open to entry or the preference to be granted to another. Art. 8. The executive may make use of the right of coercion in securing observance of the fiscal obliga- tions imposed hereunder. (This law shall become effective from August 16, 1918.) (Signed) V. Careanza. The British Government on April 30, 1918, directed to the Mexican Government the follow- ing note : (Note and reply translated from El Universal, Mexico City, August 13, 1918.) British Legation, Mexico, April 30, 1918, No. 34. Mr. Minister: In accordance with instructions I have received from the Prime Minister for Foreign Affairs of His Majesty, I have the honour to inform Your Excellency that the provisions of the Petroleum Decree of the 19th of last MEXICAN CONSTITUTION OF 1917 239 February, imposing new charges on petroleum-bearing lands and on contracts covering petroleum, have been examined with due care by the government of His Majesty. His Majesty's Government considers that this de- cree, especially in reference to the measures mentioned in Articles 3, 4, 11, 12, 13, 14 and 16, is of an arbi- trary and confiscatory character, which imposes an appalling charge on the petroleum industry, the result of which will be that an exaction of tribute on the petroleum industry will exist, higher than that in any other country in the world. The provisions of the decree are in the opinion of the government of His Majesty in open conflict with laws and contracts in force, according to which con- siderable investments of British capital have been made in petroleum-bearing lands, and in the petroleum industry in Mexico. His Majesty's Government observes that the pay- ment of taxes in kind, mentioned in the decree, might produce a monopoly of facilities at present existing for storage of petroleum, and that it would be con- trary to the principles of the Mexican Constitution and those of justice to separate surface rights from subsoil rights which now belong to those land owners who have invested capital in the petroleum-producing zone. For the above reasons His Majesty's Government formally and energetically protests against the putting into effect of the provisions of the decree in question 240 INDUSTRIAL MEXICO so far as concerns British subjects and British capital, and holds the Mexican Government responsible for all loss and damage which might result to English subjects and capital as a consequence of the decree. I avail myself of this opportunity to renew to Your Excellency the assurance of my high esteem. (Signed) H. A. Cummings. To His Excellency General Candido Aguilar, Minister of Foreign Relations, Mexico. The reply of the Mexican Government to the foregoing note follows : Mexico City, Aug. 12, 1918. . . . Without judging the exactness or inexactness of the qualifications of established taxes, the Mexican Government can only express the surprise caused by the note and the protest of his Britannic Majesty, for, in the capacity of an independent nation in the legiti- mate exercise of her sovereignty, Mexico issued a de- cree against which the only recourse that Mexican laws concede is when they judge onerous and confis- catory taxes decreed by public power. The surprise of the Mexican Government is legiti- mate, as would be that of any other government of a free country, including that of his Britannic Majesty, if it found that acts of interior legislation such as the right of imposing contributions were called into ques- tion by the diplomatic protests of the countries of sub- jects affected by the imposition. The Mexican Gov- MEXICAN CONSTITUTION OF 1917 241 ernment is sure that the Government of His Majesty- would not permit diplomatic protests against the high contributions that the war has caused him to decree in all his dominions, and which would weigh equally, not only upon British subjects and subjects of con- quered nations, or those subjected in any form to his dominion, but upon foreigners alike. In virtue of its freedom of fiscal legislation, it is opportune to declare that the Mexican Government doe-3 not recognize the right of any foreign country to protest against acts of this nature coming from the right to exercise interior sovereignty, and, in conse- quence, cannot accept the responsibility which it is pretended will be charged to her account as supposed damages as a consequence of this legislation. Such a decision is founded upon the equality which the Mexican Government desires should exist between Mexicans and foreigners regarding contributions de- creed in its territory, because it is deemed that, eon- ceding the preferences to which all diplomatic inter- vention tends, such a decision is fair to Mexico in its strictest terms. The course to be taken by foreigners and nationals alike to free themselves from impositions which are deemed confiscatory consists in submitting the case before tribunals, which are always found ready to ad- minister justice, applying the law, which justly guar- antees individuals against confiscation of property. Furthermore, it is generally admitted that diplomatic representation should be the last recourse taken and only when the last resources have been exhausted. 242 INDUSTRIAL MEXICO If the provisions of the decree are openly against the laws and in violation of contracts previously made, ac- cording to the concept of his Britannic Majesty, such could not rationally constitute an obstacle to the free development of Mexican property, and this develop- ment can demand, as has happened, certain changes of legislation beneficial to the country. This is evident when it is considered that the modem concept of prop- erty is that it is a social function bound closely to the prosperity of the State. The Mexican Government has a firm purpose in re- spect to foreign interests. It gives them guarantees facilitating their development and believes that its program can only be realized through the laws and institutions of the republic by applying disposition equally. Esteeming that it is the best guarantee it can im- part, the Mexican Government cannot see a way to accept the diplomatic protests from his Britannic Maj- esty, which would have the effect of giving English citizens unequal preference over Mexican nationals. Candido Aguilab. The protest of the French Government fol- lows: French Legation, Mexico City, May 13, 1918. Excellency: The Decree of February 19 last levying new taxes on oil-bearing lands and contracts relating to the sale MEXICAN CONSTITUTION OF 1917 243 of petroleum has aroused considerable concern among the numerous stockholders of foreign or Mexican oil companies established in Mexico. They complain particularly that the provisions of Articles 3, 4, 11, 12, 13 and 14 of the new decree impose upon the industry fiscal charges so burdensome as not to be comparable with those levied by other countries. They claim that these regulations, strict compliance with which might entail confiscation, rest on principles of law wholly different from those on which was based the legislation in force when their investments in petroleum in Mexico were made. At that time no attempt was made to establish differences between surface rights and those flowing from sub- surface ownership ; it is due to this distinction that it has been possible to assess the new taxes which deprive companies of almost all the profits they had hoped to enjoy from the capital invested, thereby gravely jeopardizing the existence of some of these con- cerns. Acting under instructions from my government, I beg to call to the attention of Your Excellency the seri- ous situation that may be faced by the oil companies as the result of this new measure, and to say that I am constrained to make all reservations as to the conse- quences that may befall the French shareholders of such companies. Accordingly, I appeal to Your Excellency to bring your influence to bear on behalf of the interests with whose defence I am charged. 244 INDUSTEIAL MEXICO Accept, Mr. Secretary, the assurances of my very high consideration. (Signed) F. Dejean. The reply of the Mexican Government to the French note of protest follows : Department op Foreign Affairs. No. 2770 Mexico, Aug. 15, 1918. Mr. Charge d' Affaires: I have the honour, under instructions from the President of the Republic, to make reply to your note of May 13 last, which Your Excellency addressed to this Government with regard to the Decree of Febru- ary 19 fixing a tax on oil-bearing lands and oil con- tracts. On the assumption that this decree is a new regulation in oil legislation which might bring about a serious situation for companies in which French stock- holders are interested, Y. E., under orders from your Government, is pleased to call the attention of this de- partment to such disadvantages, and to add that you are constrained to make all reservations as to the con- sequences that might be caused to such stockholders. At the same time, Y. E. is pleased to appeal to this department to bring, its influence to bear on beheilf of the interests with whose defence you are charged. The President has instructed me to give to Y. E. all assurances as to the fate of the , interests you so worthily represent, since the French- shareholders may, under the protection of the laws and institutions of the Republic, appeal to the Mexican courts in the MEXICAN CONSTITUTION OF 1917 245 event of their considering the tax which gave rise to the note of Your Excellency either burdensome or prejudicial to their interests, with the certainty that justice will be done them. Further, I am authorized to state to Your Excellency that the Mexican Govern- ment in its desire to facilitate the development of the natural resources of the country, will be quick to modify the legislation on the subject if their applica- tion shows that they fail in their purposes and if the damages which foreign and national interests believe they suffer as the result of their enforcement are ade- quately proved before the courts of the nation. The Mexican Government is keenly interested in the development and security of foreign investment in Mexico; it is confident it will achieve this purpose by its legislation and through its authorities, and the one no less than the other, Your Excellency may be quite sure, will justly consider all steps taken by French stockholders in defence of their interests. Permit me to express the hope that the French Gov- ernment will be duly apprised by Your Excellency as to the true character of the measures of the Mexican Government on this subject, and to renew to Y. E. the assurances of my kind consideration. (Signed) C. Aguilae. In December, 1918, President Carranza pre- sented to the Mexican Congress a bill embody- ing a Petroleum Code, containing 125 articles. Articles 1 to 16 will give a clear indication of 246 INDUSTRIAL MEXICO the proposed legislation, which failed to pass the last session of the Mexican Congress, but which will be considered in all probability in an amended form at the regular session in Novem- ber, 1919. An extract from this bill is given below : Whereas the increasing importance of the oil indus- try requires that preference be given to a settlement of all the problems having a relation to the said industry, so that its development may be intensified by the in- vestment of new capital ; and Whereas such a result can only be attained by the institution of a legal system which shall consolidate past investments, Now, therefore, the Executive by virtue of the power conferred on him by Sec. I, Art. 71, of the Fed- eral Constitution, hereby submits to the consideration of the Congress the following Proposed Organic Law op Article 27 op the Con- stitution IN the Matter op Petroleum. Art. 1. The Nation enjoys the legal ownership of the following substances which are subject to the pro- vision of this law : I. — Ore bodies, measures and natural de- posits of petroleum; II. — Gaseous hydrocarbons to be found in the subsoil or those seeping through the ground to the surface; MEXICAN CONSTITUTION OF 1917 247 III. — Natural deposits of ozokerite and asphalt; and IV. — All mixtures of hydrocarbons of the several kinds having their origin in natural phenomena. Art. 2. The legal ownership of the Nation in the substances enumerated in the foregoing article is in- alienable and imprescriptible; consequently the rights granted under this law shall not constitute absolute and definite ownership. Art. 3. The rights granted under this law may be hypothecated, alienated and transferred wherever the general law authorizes such transactions in the case of real property; notice shall be given to the Depart- ment of Industry, Commerce and Labour of all such transactions. Failure to comply with this provision will be punished by a fine of from 50 to 500 pesos ; and no operation of any kind whatsoever relating to the petroleum industry shall be carried out on any petro- leum claim, so long as the fine remains unpaid. Art. 4. The petroleum industry is hereby declared to be of public character; accordingly, condemnation proceedings shall lie for such portion of the surface as may be necessary for the development of the claims, in pursuance of what the law may prescribe on the subject. Art. 5. Each petroleum claim shall be the object of a single franchise (concesion). Art. 6. A "petroleum claim" shall be understood to be a solid of indefinite depth limited laterally by 248 INDUSTRIAL MEXICO the vertical planes passing through the boundaries of a continuous area devoted to petroleum development. Art. 7. The term "petroleum development" shall be understood to mean the extraction, reducing to pos- session or enjoyment of the substances enumerated in Article 1. Art. 8. The surface area of a claim shall not be les^ than four hectares, and its shape shall be such as to permit the sinking of a well and the erection of a standard tank as prescribed by the regulations in force on the date of the franchise. Art. 9. Franchises granted under this law by the Federal Government to individuals or to civil or com- mercial associations organized under the laws of Mex- ico shall be limited in purpose to the development of the substances enumerated in Article 1. Art. 10. The grantee of a petroleum claim may extract therefrom and enjoy all substances mentioned in Article 1, without any other limitation than that of not trespassing in his development work on adjoining properties and that of complying with the provisions of this law and of such regulations as may be enacted on petroleum development. Art. 11. Operators of a petroleum claim may ap- propriate within the limits of their claim, subject to authorization of the Executive, the surface area neces- sary for the work of extraction and for the immediate storage of the products extracted, paying in such event due compensation to whomsoever may be hereto enti- MEXICAN CONSTITUTION OF 1917 249 tied; any judicial action taken hereunder shall not interfere with the prosecution of the work. Art. 12. Operators of a petroleum claim shall ac- quire easements of way and of pipe-lines on obtaining proper authorization from the Executive to install such pipe-lines and pumping stations as the develop- ment of the property demands, on payment of due compensation to whomsoever may be thereto entitled ; any judicial action instituted hereunder shall not inter- fere with the prosecution of the work. Art. 13. Operators of a petroleum claim shall have the right to establish storage stations and refineries, subject to the approval of the project by the Executive and to the assent of the owners of the lands it is sought to occupy. In the event of failure to obtain such assent, the necessary area may be condemned pursu- ant to the condemnation laws then in force. Art. 14. Operators of petroleum claims shall have the right to build wharves, loading stations and sub- marine pipe lines subject to the approval of the Executive in conformity with the provisions in force in this regard. Art. 15. Only grantees shall have the right to build storage tanks or refineries on their respective petroleum claims. Art. 16. The grantee of a petroleum claim may use the surface waters for the needs of his operations, in pursuance of the general law on the subject. He may likewise use the subsoil waters for the same pur- 250 , INDUSTEIAL MEXICO pose, subject to the authorization of the Executive and on payment of the due compensation to whomsoever may be hereto entitled. The following values were assigned by the Mexican authorities as a basis for the 10 per cent, export tax during July-August and Sep- tember-October, 1918: Pesos Fuel Oil, of density 0.91, per ton 13.00 Crude Oil, of density 0.91, per ton 15.50 Oil, of density greater than 0.97, per ton. . 6.00 Gas Oil, per ton 13.00 Eefined Gasoline, per liter 0.125 Crude Gasoline, per liter 0.1175 Kerosene, crude or refined, per liter 0.04 As before, twenty centavos are to be deducted from the price fixed for each one one-hundredth increase in density, and forty -centavos to be added to the price for each one one-hundredth decrease in density. One peso is at present something more than fifty cents in United States currency. At this rate fuel oil of density 0.91 is valued in our currency at $7.15 a ton. The usual rates of conversion of tons into barrels are as follows : for Tuxpam "crude oil" (0.93 specific gravity), 6.7 barrels to the metric ton; for Tuxpam "fuel oil" (0.949 specific grav- MEXICAN CONSTITUTION OF 1917 251 ity), 6.5 barrels to the ton; for Panuco "crude" (0.98 specific gravity), six barrels to the ton. The conversion rate for density 0.91 -would thus be about seven barrels to the ton, making fuel oil of this grade come to $1.15 (United States currency) per barrel, and the tax, ten cents per barrel. The density of ordinary Mexican fuel oil, however, is 0.95. Making all the proper deductions, fuel oil of this grade is valued by the Mexican authorities at $6.71 per ton or $1.03 (United States currency) per barrel, and the tax likewise ten cents per barrel. According to the figures ruling before the change of Sep- tember 13, the tax on this grade of oil was about twelve cents. The actual selling price of ordi- nary fuel oil in Mexico (free on board ship at Tampieo) appears to range from twenty-eight to seventy-eight cents per barrel, according to density and per cent, of gasoline content. The lower prices pertain to heavier oil with a small per cent, of gasoline. Heavy Panuco, for in- stance, of about 0.98 density (twelve degrees Baume), sold at twenty-five cents per barrel (f. 0. b. Tampieo) on July 1, 1918. Even Tux- pam crude of 0.93 density has been recently juoted as low as forty-three cents per barrel it Tampieo, although the usual price is higher. The highest price recently obtained for Tuxpam 252 INDUSTEIAL MEXICO fuel oil of 0.95 density was seventy-eight and one-fourth cents, but this appears to have oc- curred in only one consignment. On July 14, 1919, the Mexican ambassador to the United States, Ygnacio Bonillas, made the following statement regarding the oil situation : "I know that drilling permits are granted to com- panies and to individuals who comply with the requi- sites of law, and that a great many permits are being asked by companies who have not the means to take out all the oil the wells are capable of producing. The companies have never exported from Mexico more than 10 or 12 per cent, of the capacity of the wells. The Mexican Government has always been perfectly willing that they should export all they could to the full capacity. "There is absolutely no intention on the part of the Mexican Government to confiscate properties. All that Mexico desires is to derive a revenue from this great natural wealth, which, previous to the establish- ment of the government emanating from the revolu- tion, flowed out of the country without any benefit other than giving work to some of the people in the oil region. The oil men object to the revolutionary decrees, and the matter of legislation on oil subjects is in the hands of our Congress at the present time. It is my firm belief that when the Mexican Congress gets through with that legislation it will be equitable and just legislation which ought to be satisfactory to all." CHAPTER XII GOVERNMENT DEPAKTMENTS AND INSTITUTIONS National Congress. Departments. Education. Museums. Telegraphs, Post Office and Harbours. Libraries. Religion. The National Congress is composed of a Sen- ate and a Chamber of Deputies, the former con- sisting of fifty-six members, two for each State and the Federal District, elected indirectly for a term of four years. One-half of the Senate is renewed every two years. The members of the Chamber of Deputies are also elected indirectly, but for a term of two years, in the proportion of one Deputy for 40,000 inhabitants or frac- tion exceeding 20,000. Suffrage is possessed by all male citizens who have reached the age of eighteen years if mar- ried, and of twenty-one years if not married. Congress meets twice a year. The first session is from September 16 to December 15, and may be extended for thirty legislative days. The second session is from April 1 to May 31, which may be extended for fifteen legislative days. During recess, Congress is represented by a 233 254 INDUSTEIAL MEXICO Permanent Committee consisting of fourteen Senators and fifteen Deputies, which has the power to convene Congress, either upon its own initiative or at the suggestion of the President, in extraordinary session. The duties of the committee are to advise the President relative to matters affecting legislation ; to give its con- sent to the use of the national guard by the President upon certain occasions provided for by the constitution; to prepare a report on all pending legislative matters in order to expedite action by the next Congress ; to give or withhold its approval of presidential appointments in the diplomatic and consular services, and to admin- ister the oath of office to the President of the Eepublic and to the justices of the supreme court in certain cases provided for by the con- stitution. The President and Vice-President are chosen by electors for a term of six years ; the Presi- dent is assisted by a cabinet of eight secretaries. His salary is 50,000 pesos, equal to $25,000. The cabinet officials are appointed by the President and are directly responsible to him for the proper administration of the respective departments. The Department of Foreign Relations (Sec- retaria de Relaciones Exteriores) is charged GOVERNMENT DEPARTMENTS 255 with the conduct of all diplomatic and consular matters at home and abroad, the negotiation of treaties and conventions, the settlement of boundary disputes, and such other international matters as may arise from time to time. The secretary of this department has custody of the grand seal of the nation and is keeper of the national archives. The Department of the Interior (Secretaria de Gobemacion) has charge of the administra- tion of the Federal District and the National Territories ; the regulation of the federal rural police, elections, immigration, public charities, sanitation, the National Printing Office, and the Official Gazette (Diario Oficial). The Department of Justice (Secretaria de Justicia) has jurisdiction of the national ju- diciary comprising a supreme court, three cir- cuit courts, and thirty-two district courts, as well as the various courts of the States, Terri- tories, and Federal District. The eleven su- preme court justices and four supernumerary justices are elected by indirect vote of the peo- ple for a term of six years. The Department of Public Instruction and Fine Arts (Secretaria de Instruccion Publica y Bellas Artes) has supervision over the educa- tional institutions of the Federal District and 256 INDUSTEIAL MEXICO the National Territories, and over the higher grades of instruction in the various States. Under its scope are such institutions as the Academy of Fine Arts, the Conservatory of Music and Declamation, the National Patholog- ical Institute, and other scientific academies and societies. Public libraries, registration of copyrights, national museums, and archaeolog- ical exhibits also fall within the jurisdiction of this division. The Department of Promotion (Secretaria de Fomento, Colonizacion e Industria), which is divided.into five sections, is devoted to the regu- lation, progress, and development of the nat- ural resources of the Republic. The forests, mines, agricultural lands, and water powers are each assigned to one of these sections for due attention and exploitation. Under this depart- ment are established the Bureau of Weights and Measures, Bureau of Printing and Engraving, Patent Office and Commercial Trade-marks, Registry of Deeds, Bureau of Statistics and Ar- chives, and Publications. The Department of Communications and Pub- lic Works (Secretaria de Comunicaciones y Obras Publicas) is charged with the regulation of all railways, private as well as government owned, street railways, telegraph and telephone GOVERNMENT DEPARTMENTS 257 systems, cables, wireless service, and with the improvement and development of highways, bridges, harbours, ports, and other means of communication and transportation. It also has charge of the various public buildings, and is empowered to maintain these as well as to erect new edifices when necessary. The Department of Finance (Secretaria de Hacienda, Credito Publico y Comercio) has the duty of collecting all federal taxes, the admin- istration of the custom houses, mints, and as- say oflSces, the disbursing of public funds, com- pilation of commercial statistics, and such other fiscal matters connected with the administration of the government. The Department of War and Marine (Secre- taria de Guerra y Marina) has charge of all matters pertaining to the national defence, as well as supervision and maintenance of various naval and military schools and colleges. Mexico is divided politically into 27 States, 3 Territories, and 1 Federal District. Govern- ors of the States are elected in the same manner as the President of the Republic, as are also the legislatures and the judiciary of each State. The Territories are administered by govern- ors appointed by the President, while the gov- ernment of the Federal District, which includes 258 INDUSTEIAL MEXICO the capital, Mexico City, is in the hands of three officials, likewise appointed by the President. The States and Territories are subdivided into municipalities, which elect their own adminis- trative councils and mayors. Notable progress has been made in the ex- tension of the post and telegraph service in the Eepublic. There are now about 3,000 post- offices of all classes, 500 telegraph stations, with 25 telephone and 6 wireless-telegraph stations. The length of wire totals about 75,000 kilome- tres (46,602 miles), while the cable system shows a total length of cable amounting to 775,000 metres (over 480 miles). Education Education in Mexico has been for many years the subject of serious consideration on the part of the government. As early as 1836 it had been decreed that the department boards in the States should establish public schools. In 1843 there were 1,310 primary official schools, but the organization was neither complete nor sys- tematic. In 1910 the nunaber of primary schools alone was 12,000, and the attendance in them substan- tially 1,000,000. GOVEENMENT DEPARTMENTS 259 Elementary tuition is under the care of muni- cipalities, and they are obliged to establish at least one school for each 4,000 inhabitants. Municipal schools of the federal District and of the Territories come under Federal jurisdic- tion. The superior board of primary education (Direccion Superior de Instruccion Primaria) has been created for the organization, superin- tendence and management of said institutions. On the other hand, the individual States exer- cise considerable discretion as to the manner in which such instruction is carried out, and are practically independent in their development of the higher grades and courses, each State en- couraging high schools and special schools ac- cording to the needs of its own population. The most advanced branches, those that fit students for technical or professional careers, are again subject to direct Federal control. The Mexican university was founded by royal decree of January 25, 1553, and was followed by another at Guadalajara and by one of less importance at Chiapas. It was closed and dis- solved during the unquiet times of 1862, The faculties teaching law, medicine, engineering and artistic branches continued their work, however, although organic association between them was lost. 260 INDUSTRIAL MEXICO The university has five faculties: law, medi- cine, engineering, fine arts, and the college of special (non-professional) studies. The schol- astic year runs from February 1 to the end of November. The administration lies in the coun- cil consisting of two professors and one student from each faculty, the rector being appointed by the President of the Republic. The faculty of engineering receives the largest financial sup- port, while that of fine arts (architecture hav- ing full faculty rank) has the most students. The general program for primary education embraces morals, civic instruction, the national language, history, geography, arithmetic, the principles of physical and national sciences, to- gether with drawing, singing, and for girls, sew- ing, etc. For superior primary instruction there are added French, several sciences in their principles, and advanced studies in graded work. Museums. There are throughout the Repub- lic museums of art, science and archaeology. As a rule, each State has, in the capital city, a Museo del Estado (State Museum), devoted to State products and antiquities. The largest and best museunl of the country is in the City of Mexico. It is a part of the National Palace, and is called the National Museum (Museo Na- cional de Mexico). GOVEENMENT DEPARTMENTS 261 Libraries. The Biblioteca Nadonal (Na- tional Library), in the City of Mexico, is by far the largest, having about 200,000 volumes. Religion. The Constitution expressly pro- vides for the independence of Church and State. As might be expected from its history, the pre- vailing religion in Mexico is the Eoman Cath- olic, the foundation of which may be said to date from 1517. However, the Mexican Epis- copal Church, in reality a part of the general Protestant Episcopal Church, the Presbyterian Church, the Methodist Episcopal Church, the Baptist Church, and several other denomina- tional as well as unsectarian religious organiza- tions, have been established in the Republic. As part of the educational forces of the Re- public emphasis must be given to the numerous charitable and correctional institutions, sup- ported to a large extent by the government, both of the nation and of the individual States, and also by private gifts and foundations. The manifestation of this spirit was one of the early incidents of the Spanish conquest, and in every city of colonial times there was an endowed hos- pital, school, and an asylum. Not a few of these institutions have disappeared with changing conditions ; but many have preserved their iden- tity or have been taken over by the government. 262 INDUSTRIAL MEXICO To these should be added the hospitals and peni- tentiaries started within the past generation. Telegraphs, Post Office and Harbours During the year 1918 a total of 291,902 parcel post packages passed through the Mexican post office, of which 277,357 were from the United States and 15,545 were from other foreign countries. As compared with the last previous year for which there are any official reports (1912-13), this shows a decrease in the number of packages from European countries of 91,253, while the number of packages from the United States increased 159,458. Throughout practically the entire revolution the Carranza forces were kept busy restoring the telegraph and postal services as rapidly as new territory came under control. Repair gangs went with the armies into the field, and the telegraph lines, which had for the greater portion been destroyed by the enemy, not once but many times, were repaired, restored and put into operation with as little delay as possible. So closely was this work pushed that not infre- quently civilians thus employed were killed or wounded by the enemy. At the present time there is complete tele- tti (i > &- K H J O W 0- J P < Of S w fc o o 3 o j-4 J 3 Q ca z P < fc Q H K P ^ < « W CO w < i 1 03 >< O H fc O « O O > w X a w S 2 M g a o S fe fe o H 02 O Ph w K H GOVERNMENT DEPARTMENTS 263 graphic communication with all portions of the Republic, and this has been the case for many months. The last State to be thus provided was Morelos, where Zapata held sway so long, and which has now come under the control of the Federal Government. When the difficulties encountered are considered, the total destruc- tion of equipment, the scarcity of suitable ma- terial for poles, and the remoteness from sources of supply, the promptness with which telegraphic communication has been restored and maintained is one of the niost interesting achievements of the period. One of the most important features of the work of reconstruction has been the establish- ment of a complete system of wireless telegra- phy connecting all portions of Mexico, and act- ing as a safeguard against the cutting of the land wires by bands of marauders. The over- whelming importance of such a system was demonstrated during the revolution, and ex- perts were accordingly dispatched to the United States for the purpose of securing the most modern appliances and inventions in wireless communication, and these have been utilized in the various centres of population. The sta- tions at Saltillo, the capital of Coahuila, and at Chapultepec, in the suburbs of the capi- 264 INDUSTEIAL MEXICO tal, are the largest of tlie system, being of five kilowatt power. The other stations are all of two and one-half kilowatt power and are located at Vera Cruz, Torreon, Chihuahua, Cam- peche, Xcalak (in the territory of Quintana Koo), Mazatlan, San Jose del Cabo and Santa Rosalia in Lower California, and also at Guay- mas, in Sonora, and under construction at Sa- lina Cruz, Acapulco and Manzanillo. A wire- less station has been established at Cananea, Sonora, by an American copper company. The land service, which has always been the property of the Government and has afforded one of the cheapest methods of electric commu- nication in any portion of the world, has been greatly extended since the Carranza government obtained control, and many places have been given telegraphic communication which were neglected before that time. The entire country is now covered and the service is in a practically normal condition. The improvement of the harbours of Mexico is being undertaken gradually. One of the proj- ects under way is the deepening of the channel of the Panuco River and the dredging of a deep sea channel across the bar at its mouth, afford- ing easier access to the great oil exporting cen- tre of Tampico. The jetties have also been re- GOVERNMENT DEPARTMENTS 265 paired. Similar work has been carried out at Tuxpam. At .Vera Cruz the harbour has been dredged, new and substantial wharves erected, and the port put into shape to accommodate its rapidly growing traffic. Arrangements are being made to improve the seaport of Progreso, Yucatan, which is at pres- ent merely an open roadstead, vessels ^ying sev- eral miles off shore. Harbour improvements are being carried out at Frontera, in the State of Tabasco, including the dredging of a channel through the bar, thus opening the Grijalva and Usumacinta rivers for navigation by ocean- going vessels into the interior and making of San Juan Bautista, the capital of the State, a port of entry. This improvement will afford shipping facilities for the export of vast quan- tities of fruit and other products, including the renowned bananas of that region, which are su- perior to the product elsewhere and command much higher prices. At Coatzaooalcos wharves are being rebuilt and the channel dredged out. On the west coast work is being prosecuted at Guaymas and Ma- zatlan. At the latter place it is proposed to dredge a channel for deep water vessels into the estuary and establish there securely pro- tected wharves for the accommodation of the 266 INDUSTRIAL MEXICO constantly increasing commerce of that port, A wharf is projected at Acapulco, where it is much needed, while the wharf at Manzanillo, which was destroyed during the revolution, is being rebuilt. At Salina Cruz also harbour im- provements are being made. The lighthouse service of Mexico has been overhauled. Much of the machinery and equip- ment of the lighthouses had either been de- stroyed or removed during the revolution and the buildings damaged. But this has all been remedied and mariners approaching the shore on either coast find the signals all in fairly good order. INDEX Agricultural colonies, 101 Agricultural machinerjr, 116, 118 Aguascalientea, 13 Aloe wood, 107 Alvarado Ey., 15 Ambassadors, trade, viii Amozoc, 19 Automobile, factory, 129 Automobiles, market for, 133 Aviation, 127, 128 Bananas, 87 Bandits, 27, 61, 125 train dynamited by, 15 Bank credits, 170 Banks of Deposit, 194, 199 Bank pf IMscount, British, 206 Bank of Kmission, 193 Banks of Promotion, 193, 197 Bankers' Committee, Interna- tional, 214 Banking law, 188 Banks, agricultural, 193, 198 foreign, 200 local, 168 mortgage, 193, 196 nationalization of, 192 petroleum, 194 Baseball, 141 Bismuth, 69 Block-houses, railway, 16 Bonillas, Ygnacio, 252 Breweries, 130 Cactus, bread from, 102 Canfield, C. A., 39 267 Capital, native, insufficient, xi Casiano oil well, 40 Cedar, 107 Cereals, 91 Charcoal, 108 Chihuahua, 15 Ciudad Juarez, 15 Cleaning machinery, 138 Coahuila, coal fields, 14 Coal fields, 69, 70 Coast line, 38 Coffee lands, 165 bandits and rebels, 167 Congress, Mexican, 253 Constitution, 1917, Article 27, xii, 220 Article 14, 223 Cordoba, 18 Cotton, 94 Cowdray, Lord, 41 Banger zone, trip through, 16 Debt, national, vii, 207 items of, 213, 214 Decree of Aug. 12, 1918, re- garding petroleum de- velopment, 236-238 Decree Feb. 19, 1918, estab- lishing oil taxes, 223- 228 American protest, 229- 235 British protest, 238-240 Mexican reply, 240-242 French protest, 242-244 Mexican reply, 244-245 Diesel engine, 57 Doheny, E. L., 39 268 INDEX Durango, 14 Dyes, 139 Dyewoods, 115 Ebony, 107 Education, 258-260, 261 Esperanza, 16 Exports, by articles, 146, 147 Feely, Edward F., xi Felicistas, 17 Football, 141 Ford, Henry, 117 Foreign trade, growth of, x Forestry School, 115 Freight cars, American, in Mexico, 29 Freight trains, privately oper- ated, 28 express, 29 Fruits, tropical, 89 Furniture, 131 Garbanza, 23, 93 German competition, 132 Government Departments, 254-257 Guano, 105 Guadalajara, 13, 24 Guanajuato, 13 Harbours, 264 Hardwoods, 109-115 Harriman, 22 Hedrick, Dennis W., 33 Huasteca Petroleum Co., 40 Huerta, debt, xiii Helmer, N. A., 159 Henequen, 98 Horse racing, 141 Huntington, Collis P., 14 Imports, by articles, 147-151 International Kailroad, 14 Interoeeanic Railway, 12, 15, 19 Iron Mountain, 64 Iron wood, 107 Irrigation projects, 102 Jalisco, 64 Japanese competition, 64, 131 Jimenez,^ 13 Kansas City, Mexico & Orient Ry. — Sections under construction, 26 Bandit activities, 27 Bay of Topolobampo, 28 Laundry machinery, 138 Leon, 13 lierdb, 13 Libraries, 260 Lighthouses, 266 Limantour, buys railway stock, 12 Limes, 89 Liquors, 127 Lumber, imports, 121 Magazines, 128 Mahogany, 107 Maltrata, 15, 16 Manganese, 69 Manufactures, 129 Matamoras, 15. ^ Mazatlan, 14 Metlae Bridge, 18 Mexican Central Railroad, 12, 13 Mexican Eagle Oil Co., 41 Mexican Northern Ry., 31 Mexican Northwestern Ry., 32 Mexican Petroleum Co., 39 Mexican Railway, 15, 16 Mexican Southern Ry., 15, 18 Mexico, area, ix Mexico City, 4 street ears, 5 fire department, 5 traffic, 5 market, 5 INDEX 269 Mexico City — Continued jitneys, 5 department stores, 7 Minerals, exports, 62 Mines, antimony, 69 copper, 63, 66 gold, 67 lead, 67 quicksilver, 69 reopening, 62 silver, 62, 63, 66 zinc, 69 Mining law, 74 Mining statistics, 71, 72, 73 Mississippi Valley, tour of business men from, ix, 144, 145 Monterey, 15 Motor trucks, market for, 134 Museums, 260 National Eailroad, 12 Newspapers, 128 Nieto, Rafael, 219 Norwegians, developments by, 125 Oak, 107 Oaxaca, 19 Oil companies, principal, 40, 41, 42 Oil discoveries, Colima, 44 Chiapas, 45 Sinaloa, 44 Durango, 45 dividends, 47 exports", 48, 59 fields, location, 53 fuel, types of, 55 industry, evolution, 48 output, principal compa- nies, 58 rentals paid for lands, 47 submarine deposits, 46 taxes, 223, 250 wells, number, 42, 43 Oranges, 85, 86 Orangewood, 107 Orizaba, 17 Osterheld, T. W., 207, 208 Packing House, National, 209 Packing houses, 126 Pan-American Ry., 15 Paper money, 207 monelova issue, 210 Constitutionalist issue, 210 Infalsificables, 211 Paraflfine deposit. Chihuahua, 45 Parral and Durango Ey., 32 Patent laws, 154 Petroleum Code, 246-250 Piedras Negras, 15 Pine, 108 Pineapples, 88 Population, ix Ports, 38 Portuguese, labourers, 127 Posts and telegraphs, 258, 262 Potosi and Rio Verde Ry., 32 Puebla, 18 Puerto Mexico, 19 Queretaro, 13 Railway construction, diflScul- ties, 25 Railway debt, 214 Railways, Government — Laredo, Tex., to Mexico City, 2 military guards, 2 damaged cars and sta- tions, 2, 7 shrinkage in equipment, 8 equipment destroyed, 17 equipment in service, 20 employes, 21 receipts, 21 growth of, 11 270 INDEX Bailway statistics, 35 Bailway supplies, market for, ix, 10, 11 Baspberries, 88 Rebels, train dv&amited by, 17 Begis, bote!, 4 Beligion, 261 Bevival, business, v Bhodes, Cecil, 52 Bubber, guayule, 95 manufacture, 96, 128 Salesman's itinerary, 122 Sales terms, 173-187 Salina Cruz, 19 Saltillo, 15 San Esperanza, mines, 14 San Luis Potosi, 13 Schmidt, Max E., 25 Shoe factories, 130 Silk industry, 102 Sisal, 98 Southern Pacific — lines in Mexico, 22 damage by rebels and band- its, 23 armoured cars, 24 Speyer, 12, 208, 209 Sport, 141 Steamship lines, 36, 37 Stilwell, Arthur E., 26 Strawberries, 88 Sugar mills, 157 equipment needed, 161 Tampico, 15 Tehuantepec !N'ational By., 15, 19 Tepic, 24 Textile factories, 130 Torreon, 13 Tractors, 104 Ford, 117 Trade bodies, 142 Trade-marks, 152 Train, military, 18 Vanadium, 69 Vegetable oils, 90 Vegetables, 89 Vera Cruz & Isthmus By., 16 Vera Cruz & Pacific By., 33 Villa, 137 Vine culture, 100 Wahiut, 107 Wines, 127 Wireless, 258, 263, 264 Yucatan, railways, 30, 209 sisal, 98 Zacatecas, 13 Zapatistas, 7, 157