Memorandum by the Economic Adviser (Feis)
Mr. Muniz, who is serving as special assistant to the Brazilian Ambassador in connection with the commercial agreement negotiations, came in to see me yesterday in order to discuss informally various topics connected with commercial negotiations.
First of all he asked for information in connection with the reported deal for the sale of American cotton to Germany.31 He said that this transaction was of certain interest to the Brazilian Government because as we knew they had been in discussion with the German Government, and had deferred any agreement pending the outcome of our discussions with them. If we were going to enter into such an agreement it naturally would have an effect on their action.
I told him that I was not informed as to the standing of the particular proposal, and since the matter seemed to bear so directly on all of our proposals to Brazil, I thought it advisable that he talk directly to Mr. Sayre. The talk was therefore continued in Mr. Sayre’s Office, Mr. Grady joining it.
Mr. Sayre stated that while a proposal had been formulated and was under discussion between groups in the two countries it had not yet been agreed upon or put into effect. He added that for Mr. Muniz’s own information, this proposal had not originated in the Department, and it was not the type of trade arrangement which seemed to the [Page 569] Department to fit into its trade policy; but he could not say at the present moment whether it would or would not be effectuated.
Mr. Muniz explained that it seemed to him the same type of transaction the Brazilian Government was being pressed to enter into by various European countries. The talk broadened from this matter to the general questions of policy formulated in the drafts presented by us to the Brazilian Government of a commercial agreement (especially with regard to the exchange control provision of the agreement) and the joint declaration of policy which it was proposed to issue after the signature of the agreement. Mr. Muniz implied that such a transaction as this one dealing with cotton would seem to contradict the leading idea in the proposed joint declaration. It was admitted by us that this was the case, and the thought was expressed that there might have to be a few actions in the opposite direction from the policy which might still be maintained as a main principle.
Mr. Muniz then continued to reiterate, though always with courteous regret, that it seemed to him that the policy that would be embodied in the joint declaration would make it very difficult if not impossible for Brazil to maintain its trade with Europe, and that what would seem to suit Brazil best was an arrangement that would protect American interests fully and still permit Brazil to maintain its European markets. Mr. Sayre and Mr. Grady both admitted a certain difficulty and risk for Brazil in entering upon the policy represented by the joint declaration. They pointed out, however, and Mr. Muniz understood, that the declaration represented an attempt to check the spread of the European policy of clearing and compensation agreements, and to give a lead to the world in the opposite direction; if a certain amount of risk of loss of trade with Europe was involved, the two countries would have to be prepared to run the risk and make a determined effort to modify world trends which, if it succeeded, would serve the commerce of both countries better than the present trade. Since Mr. Muniz continued to return to the problems presented to Brazil it was suggested that the most useful thing that could be done at this stage would be if those problems could be presented concretely, country by country, so that both parties could really weigh them and see if some solution to them could not be found compatible with the general principle embodied in the joint declaration. It was agreed that Mr. Muniz and Mr. Grady should meet the following day to run over these problems case by case.
The conversation naturally also touched upon the provisional decree issued by the Brazilian Government, to be effective beginning December 10,32 in accordance with which Brazil would assign the proceeds of coffee sales to each country in rough percentage to the extent [Page 570] that they were created by sales in each country. From his remarks I received the impression that certainly one purpose that had moved the Brazilian Government was to bring pressure on those countries, particularly Great Britain, who sold Brazil much more than they bought from Brazil. Resistance was anticipated by Great Britain and this fact was confirmed by cables received from George Gordon in Rio this morning.33
Mr. Muniz is apparently trying to form judgments on all aspects of the situation for the purpose of advising his Government what response to make to our proposals.