632.6231/43: Telegram

The Ambassador in Brazil (Gibson) to the Secretary of State

115. Department’s 62, April 17, 6 p.m. The text of the resolution passed by the Brazilian Foreign Trade Council on the 16th instant is as follows:

“The Federal Foreign Trade Council after having concluded its studies with reference to the marketing of the cotton crop of 1935 and to the exportation of the crop of this year viewing the sale of this product in its relation to the general commercial interchange with Germany, hereby resolves to suggest to the Government that a provisional commercial accord be realized immediately with a view to determining—given the economic regime now prevailing in Germany—the products which shall be imported by Brazil and the products which shall be exported to Germany. The accord in question shall decide the method of payment”.

Emergency commercial agreement mentioned in Times’ article is in fact contemplated and the proposal provides establishing a quota system to control exports from Brazil and imports from Germany. Accord would not become effective until present German-Brazilian accord1 lapses next summer. It must also receive legislative approval. [Page 248] Thus no practical effect is contemplated before August or September.

The primary significance of the Council’s recommendation is that the Brazilian Government cannot evade giving some satisfaction to cotton exporters particularly in the north. In view of the political and economic situation the Government is not in a position to disregard the pressure being brought to bear by cotton interests in various parts of the country.

Whether the quantities licensed for import and export will be based upon the average of last 5 years or upon 1934 or upon 1935 is now under consideration by Macedo Soares.2 Foreign Office leans to last 5 years but this would not favor the cotton exporters who are just now agitating strongly because German cotton purchases were much lower previously than in 1935. Boucas3 is endeavoring to secure 1934 or 1933 as basis for “normal” trade volume between Germany and Brazil.

The Council’s resolution signifies that Government realizes need for restricting German trade and is ready although unwillingly to adopt quota system. This solution, accepted only after many other devices have been considered, is result not only of pressure from English and American business firms but also of realization that Brazil must build up favorable trade balance, first, to support her currency and, second, as a matter of patriotic sentiments.

Means to be used in payment will be compensation marks but present plan is to force German banks in Brazil to carry entire load. Exporters here receiving payments in compensation marks will take latter to German banks for rediscount. German banks will sell 35% to Bank of Brazil at official exchange rate and will be forced immediately to buy back the same funds at open market exchange rate so that Bank of Brazil will not sustain any loss or acquire any compensation marks in future.

In view of large prospective Brazilian cotton and coffee crops and particularly of pressure by northern cotton growers, holders of low grade stocks, the Brazilian Government feels obliged to permit a solution maintaining payments in compensation marks; but by establishing reduced quotas and by forcing the German banks in Brazil to carry the entire load will remove many of the objectionable features of the system from the American viewpoint.

Confidentially Macedo Soares in several recent conversations with me has shown himself fully alive to the dangers of destroying American import trade and good will and is studying partial list of imports showing effect on our commerce of competition by Germany. He is [Page 249] studying measures to protect lines normally purchased by Brazil in the United States, automobiles, typewriters, et cetera.

The Bank of Brazil is apprehensive that Germany may soon arrange devaluation of the mark and is determined not to be caught for a loss. Sebastiao Sampaio4 has been negotiating in Berlin but Foreign Office states he has made no report.

  1. Signed October 22, 1931, League of Nations Treaty Series, vol. cxxxvi, p. 443.
  2. José Carlos de Macedo Soares, Brazilian Minister for Foreign Affairs.
  3. Valentim F. Boucas, member of the Brazilian Foreign Trade Council.
  4. Chief of the Commercial Section of the Ministry for Foreign Affairs, 1934–1936. In the latter year he was sent as a commissioner to Europe to readjust commercial accords with various countries.