832.802 Lloyd Brasileiro Navigation Co./38

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

No. 1662

Sir: Reference is made to your despatches No. 3604 of May 23, 1931, and No. 3591 of May 9, 1931, and to previous correspondence in regard to Article 7 of Brazilian Executive Decree No. 19682 of February 9, 1931, establishing a discount of fifty per cent on consular fees to shippers by the Lloyd Brasileiro Navigation Company.

It is noted that the Minister for Foreign Affairs has stated to you that the Article in question should be regarded not as a discrimination against foreign shipping companies, but as a form of subvention which the Brazilian Government grants to the Lloyd Brasileiro Steamship Line. After further consideration of this matter, the Department feels [Page 880]that the privileges granted by the decree in question differ materially from a “subvention” or “bounty” to Brazilian vessels. The former benefit shippers directly by reducing the fees which they are required to pay in connection with the shipments on Brazilian vessels and were evidently designed to persuade them to send their shipments on such vessels rather than on vessels of the United States or other countries. A “subvention” or “bounty” would not have the effect of appealing so directly to shippers who would be benefited, if at all, only in an indirect way through the possible lowering of freight rates as a result of such “subvention” or “bounty”.

While the Brazilian decree in question does not involve an express discrimination against vessels of the United States, it is believed that it may properly be regarded as coming within the scope of Section 26 of the Shipping Act of 1916. This statutory provision is quoted for convenient reference:

“Section 26. The board (United States Shipping Board) shall have power, and it shall be its duty whenever complaint shall be made to it, to investigate the action of any foreign Government with respect to the privileges afforded and burdens imposed upon vessels of the United States engaged in foreign trade whenever it shall appear that the laws, regulations, or practices of any foreign Government operate in such a manner that vessels of the United States are not accorded equal privileges in foreign trade with vessels of such foreign countries or vessels of other foreign countries, either in trade to or from the ports of such foreign country or in respect of the passage or transportation through such foreign country of passengers or goods intended for shipment or transportation in such vessels of the United States, either to or from ports of such foreign country or to or from ports of other foreign countries. It shall be the duty of the board to report the results of its investigation to the President with its recommendations and the President is hereby authorized and empowered to secure by diplomatic action equal privileges for vessels of the United States engaged in such foreign trade. And if by such diplomatic action the President shall be unable to secure such equal privileges then the President shall advise Congress as to the facts and his conclusions by special message, if deemed important in the public interest, in order that proper action may be taken thereon.” (39 Stat. Part 1, page 737)

It will be noted that the language of the Section quoted above is not limited to cases of direct discrimination against vessels of the United States, nor is it limited to the rights and privileges of such vessels while in the ports of foreign countries.

Reference is made in your despatch No. 3604 of May 23, 1931, to the slight injury to which Article 7 of decree No. 19682 subjects foreign shipping agencies. The Shipping Board is of the opinion that shippers will undoubtedly be induced by the article to favor the vessels of the Lloyd Brasileiro Line, particularly in the matter of package freight where the saving on bills of lading and consular invoices will become an important item.

[Page 881]

In view of the fact that the decree has been in effect for only a few months, the Shipping Board is not prepared to submit any tangible evidence of the effect of Article 7 on the business of American flag vessels. The following figures showing exports from the United States to Brazil for the periods November 1, 1930, to January 31, 1931, and February 1, 1931, to April 30, 1931, compiled by the Shipping Board may, however, be of some significance, inasmuch as they show a marked increase in shipments by the Lloyd Brasileiro Line after the promulgation of decree No. 19682 on February 9:

Exports From the United States to Brazil,

Excluding Commerce Carried in Tanker and Tramp Services

(In Cargo Tons of 2,240 Pounds)

From November
1, 1930, to
January 1, 1931
February 1,
1931, to
April 1, 1931
American Lines (7) 34,928 35,842
Brazilian Line
 (Lloyd Brasileiro)
25,919 33,374
Other Lines (5 British,
 2 Norwegian)
46,050 25,678
Total 106,897 94,894

The informal representations which you are instructed to make concerning the possible modification of decree No. 19682 were the result of a request of the United States Shipping Board. The Department has now received a further request from that office asking that further and stronger representations be made to the Brazilian Government in regard to this matter. The Shipping Board states that if the Brazilian Foreign Office should still refuse to eliminate the discrimination complained of, it will be compelled to consider the advisability of proceeding further under the provisions of Section 26 of the Shipping Act of 1916.

While the Department attaches due importance to the opinions of your colleagues, as reported in the final paragraph of your despatch last referred to, and of course does not desire to provoke action by the authorities now in control in Brazil that would add to the difficulties of American shippers, it nevertheless considers that further representations on the subject might properly be made. After such further discussion of the situation with your colleagues as may seem desirable, you are instructed, unless you perceive compelling objection to that procedure, formally to request the Brazilian Government to grant to vessels of the United States engaged in trade between the two countries the same privileges as have been granted to vessels of the Lloyd Brasileiro Line with regard to cost of manifests and consular invoices of goods shipped on such vessels. In communicating [Page 882]this request to the Brazilian Government, you may, in your discretion, orally make reference to the provisions of Section 26 of the Shipping Act of 1916, and to the statement of the Shipping Board with respect to it.

Very truly yours,

W. E. Castle, Jr.