The Department of State to the Brazilian Embassy


The current trends in commercial policy throughout the world present peculiar difficulties for countries such as the United States and Brazil which customarily have large favorable merchandise balances [Page 550] of trade. Through quota restrictions, governmental trading monopolies, import licensing, exchange control, clearing and compensation agreements,21 a large section of the world is moving more and more toward a close regulation and control of foreign trade. Under these tendencies, the principle of equality is rapidly being superseded by preferential treatment and special advantages.

In particular, clearing and compensation agreements tend toward the bilateral balancing of trade and the destruction of the surplus exports of countries normally having favorable balances. They tend to reduce the volume of triangular trade, and have thus contributed to the disastrous decline in total world trade. Moreover, they tend to divert purchases from the best markets and to force the import of goods which are less urgently required, or altogether unnecessary. Such a diversion of trade tends to engender international ill-will, and has profoundly disturbed international economic relations.

Under these circumstances the Government of the United States would welcome the cooperation of the Brazilian Government in an effort to check the present tendency toward such agreements.

The Government of the United States proposes as a basis for discussion with the Brazilian Government, first, that there be written into the trade agreement, or be made the subject of a separate agreement, clauses reciprocally safeguarding the interests of the nationals and commerce of the two countries in so far as they are now or may be affected by the operation of any exchange control system, and all arrangements involving the provision of exchange; and, second, that upon the conclusion of the trade agreement, the two Governments join in a declaration of policy with respect to clearing, compensation, and other similar agreements.

With respect to the clauses regarding the operation of exchange control to be written into the trade agreement, this Government suggests provisions to the following effect: That the customs concessions and other benefits provided for in the agreement are reciprocally granted on the understanding that steps will be taken to insure that such concessions and benefits will not be nullified by discriminations, inequalities, or inequities in either country against the nationals or trade of the other in connection with the operation of any exchange control system or of any arrangement involving the provision of exchange; and that in order to formulate the necessary measures to insure the effectiveness of the preceding provision and to review the operation of this section of the trade agreement, representatives of the two Governments shall meet immediately on conclusion of the trade agreement and quarterly thereafter, the Governments agreeing to make available to each other all pertinent records and information.

[Page 551]

With respect to the joint declaration referred to above, it is suggested that the Governments of the United States and Brazil set forth therein their intention to bend their best efforts to direct their commercial policies in such a way as to discourage the multiplication of clearing, compensation and other special agreements.

This Government recognizes that the policy reflected in these two proposals is distinctly divergent from the policies recently pursued by many important trading countries, which in many cases are endeavoring to force upon countries with which they have an unfavorable balance of trade provisions for offsetting purchases, which require that all or part of the exchange proceeding from their imports be used for reciprocal purchases within their territories. From the standpoint of this country, the curtailment of imports into Brazil from the United States, as a result of the limited amounts of foreign exchange allotted for the purchase of American goods, and the long delays in payment now being suffered by those who sell goods in Brazil, are regarded by many American exporters and bankers as particularly onerous, in view of the circumstance that American imports of Brazilian products, principally coffee, create a volume of dollar exchange far in excess of the amount required to pay in full all obligations due to American interests. American holders of Brazilian bonds upon which service has been reduced or suspended altogether, have vigorously asserted similar views.22 Naturally enough, therefore, the Government of the United States has explored fully the possibility of proposing an agreement which would ensure prompt and full payment for all merchandise shipped to Brazil and for the service of Brazilian debts held by Americans. There can be no doubt that such an agreement would be of immediate advantage to American exporters and bondholders whose interests are preponderantly in Brazil. Nevertheless, realization of the undesirability of the system of clearing and compensation agreements as a long-run policy has caused the Government of the United States to decline to adopt such a policy, as long as there is any other solution of safeguarding the interests of the United States such as that embodied in the proposal presented in the fourth paragraph of this memorandum.

If satisfactory progress toward such a solution should prove to be impossible, the United States, in order to secure itself against inequality of treatment, might be compelled to seek arrangements whereby exchange created by the sale of products in the United States would be applied to the purchase of American goods and to the service of debts owed to Americans. This it does not wish to do.

[Page 552]

By refraining from such arrangements in connection with Brazilian-American trade, and in their relations with other countries, the Governments of the United States and Brazil may help to check the present tendency toward such agreements. A joint declaration to this effect would, it is hoped, help to reverse the present trend of international commercial policy by furnishing an example of international agreement, between two of the most important countries in this hemisphere, on a policy which looks toward the progressive removal of the existing network of restrictions on international commerce—a policy consistent not only with the best long-run economic interests of the parties to the agreement themselves, but also of those of the whole world.

This Government would ask the Brazilian Government to give most sympathetic consideration to the judgments expressed above and to the two proposals which have been submitted. It wishes to proceed with the negotiations of a commercial agreement with Brazil with all expedition possible.

  1. For earlier correspondence regarding exchange restrictions and clearing agreements, see pp. 578 ff.
  2. For correspondence concerning the servicing of Brazilian Federal, state, and municipal debts, see pp. 578 ff.