Memorandum by the Economic Adviser (Feis)

Mr. Muniz came in to see me by appointment. He told me that they had now received word from their Government regarding the commercial agreement text as at present drawn up. He did not yet have the materials ready in regard to the commodity schedules but had been asked by the Ambassador to discuss various points raised by his Government in regard to the general clauses, preparatory to a visit of the Ambassador with Mr. Welles tomorrow. He stated that his Government has raised questions regarding the following articles of the agreement (numbered as in the latest draft):

(1)—and foremost. He said that his Government feared that the inclusion of Article 6 (the exchange control article) would jeopardize the passage of the agreement through Congress. He gave no reasons except (a) it feared Congress would not understand and in its present mood of nationalism object, (b) That there is no chance that Brazil will discriminate as shown by the recent action of the Bank of Brazil. Muniz kept repeating that his Government wanted an agreement and therefore would not want anything in it that would jeopardize its passage.

I explained that protection in the foreign exchange field was one of the purposes that we would seek to deal with in every treaty, that we had been pressed to seek special advantage in Brazil, and that if we provided no explicit safeguards in this field, we would be subjected to much criticism. The present exchange regulations of the Bank of Brazil is a unilateral action which might be modified at any time. This whole field was to us a vital matter.

Finally, after various repetitions of his remarks, he said that an idea had come to him just then, that the clause might be taken out of the agreement, might then be presented to Congress and be handled in an exchange of notes. This would avoid delay of passage of the agreement.

I repeatedly made clear I was in no position to take any action on this point but promised fully to inform Mr. Welles. I had the distinct impression that Mr. Muniz was more or less on his own initiative in trying to get Article VI straightened out in order to clear the way for special arrangements to be worked through the Bank of Brazil and that he had come down to try out our position. I spared no effort to bring home to him how important the matter appeared to us,

(2) The Brazilian Government requested the suppression of the first paragraph of Article III (which guaranteed reciprocally [Page 576] “national” treatment as regards internal taxes, fees, et cetera, on imported articles). He stated that there were three or four commodities in which the imported article was subjected to higher taxes than the domestic one and that the clause as drafted would compel amendment of their fiscal legislation.

I replied that I was in no position to pass any judgment on this Article but it occurred to me that if the whole difficulty lay in the few differential excise taxes already in excess, it is conceivable that an exception might be made of those.

(3) The Brazilian Government asked the omission of the first paragraph of Article X (in which the Governments pledged themselves not to apply more than nominal penalties in the case of errors in documentations, obviously clerical, and where good faith can be established). He said his Government knew its system was somewhat defective but that imports and the revenue therefrom was of the utmost importance to it and that this would compel amendment of their present fiscal measures—a matter which might seriously impede the presentation of the agreement.

(4) His Government asked inclusion of an additional paragraph in Article IX containing the recommendations of the Seventh Pan American Commercial Conference41 in regard to sanitary restrictions reading as follows:

“The Seventh International Conference of American States, “Recommends:

“That the American States include in their future commercial treaties clauses under which they shall agree:

  • “1. To consult, whenever it is possible to do so, the interested countries before applying new measures of a sanitary character respecting international commerce in animal or vegetable products;
  • “2. To enter into conversations, at any time at the request of the interested country, concerning the application of the measures in effect;
  • “3. In case of disagreement as to the interpretation of the measures in effect, not to take any step which might injure the commerce of the interested country before submitting the question to a mixed committee of technical experts from both countries, so that it may submit recommendations to the respective governments;
  • “4. That the governments, in urgent cases, may apply the measures they consider necessary without the previous consultation and conversations provided for in the preceding paragraphs; but they are obliged to notify the affected countries immediately, with an explanation of the causes of the measures they have adopted.”

(5) His Government asked the suppression of Article XIII (which extended the benefits of the treaty to imports already entered before the signature of the agreement but still under bond for warehousing, et cetera).

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(6) His Government would like an addition to the second paragraph to Article XIV (the one in which the two Governments declare their intention of developing closer relations). They would like something more positive and concrete in form and something to the effect that both Governments will utilize their institutions to bring about these objectives. I promised all of these should be referred for consideration prior to the Ambassador’s visit tomorrow.

H[erbert] F[eis]