Memorandum by the Chief of the Division of Latin American Affairs (Wilson)

Dr. Aranha, the Brazilian Ambassador, called on Mr. Welles. Mr. Sayre, Dr. Feis23 and Mr. Wilson were present. (Mr. Sayre and Dr. Feis part of the time).

The Ambassador said that he had not contemplated a formal meeting with a large group to discuss the Department’s memorandum which he had received only the day before, had cabled to his Government, and had, of course, not yet heard from his Government in the matter. He had come in merely to express certain views which had occurred to him.

First, as regards the trade agreement proper, Dr. Aranha said that he saw no difficulties: Brazil already enjoyed practically all she desired in the way of treatment of her goods by the United States; Brazil is disposed to give the United States preferential treatment for American goods if the United States so desires, or if the United States wishes duties lowered on certain commodities, Brazil will do so, it being, of course, understood that careful study should be made to determine that any concession granted would in fact inure to the benefit of the United States and would not place other countries in a position to increase their sales to Brazil without benefit to the United [Page 553] States. It was explained to the Ambassador that our program is based on the unconditional most-favored-nation treatment which rules out preferences, and that the concessions we are asking relate to products of which we are the principal furnishers; our list of requests will be ready in a day or so.

The Ambassador then turned to the other aspect of the problem between Brazil and the United States, namely, the “financial” problem, as described in our memorandum urging liberal policy in exchange matters. Dr. Aranha said that this proposal was wholly in line with his own ideas and policies; if the two countries, however, are to make a declaration of liberal policy, they must in fact establish and carry out a liberal policy, and he would be unwilling, and also certain the United States Government would not desire, that after making such declaration Brazil should in fact continue measures contrary thereto which would make the declaration a meaningless gesture. He said that in his view a liberal policy in Brazil would be inconsistent with governmental control over exchanges and over coffee (the latter in relation to governmental taxation on coffee which artificially maintained high prices); for Brazil to enter in good faith into a declaration of liberal policy it would be necessary for her to abolish these governmental controls. In order to achieve this, there were certain problems which Brazil must resolve, and these problems he understood as follows:

Exchange control;
Coffee; and
Foreign debt.

Regarding (a) exchange control, Brazil must abandon such control if she is in fact to pursue a liberal policy in exchange matters; in other words, Brazil must divest herself of any possibility of employing illiberal methods. To abolish exchange control without risk to Brazil’s economy and finance, credits will be necessary. Dr. Aranha said that he was not thinking in terms of a large governmental credit, but solely in terms of credits extended by American commercial banks. Prior to the depression American banks such as the National City, Guaranty Trust, and Chase extended credits to the Bank of Brazil and to other Brazilian banks, which facilitated trade between the two countries. A resumption of such credits he regards as essential in order to lift exchange control. During discussion of this point Dr. Aranha said that with Brazilian exchange free to all countries, if any country, such as Germany, impounded Brazilian credits, Brazil would resist and would break off trade relations with that country—as Brazil had done with France while he was Minister of Finance.

As regards (b) coffee, Dr. Aranha explained that the Brazilian Government assesses taxation against each bag of coffee exported in [Page 554] the amount of fifteen shillings: 5 shillings pledged to service of the coffee loan (half of which, according to the Ambassador, is held in the United States), and ten shillings for “coffee defense”. Governmental control over coffee, as represented by the ten shilling taxes for “coffee defense”, Dr. Aranha regards as inconsistent with a liberal policy: to compensate, however, for revenue which would be lost to Brazil through elimination of this tax, he proposed the following: The United States, he said, imports annually a large amount of “deleterious” coffee, which is harmful to the health; most of this comes from the Dutch East Indies, although Brazil herself provides a considerable part of our imports of this “harmful” coffee; this type of coffee is so bad that Brazil prohibits its use in that country and Dr. Aranha was confident that scientific tests would prove its noxious effect and that it should not be admitted to this country. His thought was that if imports of such coffee were prohibited, the added amount of good coffee to take its place would come from Brazil and would compensate to Brazil what she would lose by doing away with the ten shilling tax.

As regards (c) the foreign debt, Dr. Aranha said that Brazil would have to find, in order to carry out the general debt plan, ten million pounds annually, which would have to be taken from the commercial market. This, however, he recognized as a Brazilian problem.

Dr. Aranha said that, as would be indicated by his statements, he was placing his cards on the table and speaking as frankly to us as he would to his own people. Mr. Welles thanked him for his extremely interesting statements, said that we would wish to consider them fully, and would communicate with him, arranging for another conference to go further into these matters, within the next few days.

Edwin C. Wilson
  1. Herbert Feis, Economic Adviser.