832.3421/38: Telegram

The Ambassador in Brazil (Morgan) to the Secretary of State

Confidential. Foreign Office in conversation today confirmed report recently circulated to the press that Vickers, Armstrong have [Page 205] proposed to Brazilian Government to erect a marine arsenal, and to construct shipyards for merchant vessels, ships, men of war. They wish also to manufacture iron and steel, using the Itabira Iron property in Minas, controlled by a British syndicate including Baring, Cassel, themselves and others. The proposal contains clauses by which legal questions will be settled by British and not Brazilian courts, and by the judiciary. Plants belonging to the group would have preferential consideration in all orders which they are capable of executing given by Brazilian Government. The financial clauses stipulate that Brazil shall issue interest bearing Federal bonds to guarantee cost of plants; excess orders which she may eventually place will be used for amount expended. The proposal has been sent from the Foreign Office to Minister of Finance.

Are American companies interested? Bethlehem Steel prepared plans for marine arsenal some years ago.

This is further proof of British drive to control Brazilian trade.