632.6231/44: Telegram

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

68. I have read your 115, April 20, and 117, April 24, with distinct interest. Please follow development of these arrangements and keep Department as fully informed as possible.

The arrangements outlined in your 115 are not entirely understood by the Department.

Will the new agreement cover other Brazilian exports to Germany besides cotton?
Will Brazilian exporters have to turn over to the Bank of Brazil (directly or indirectly) 35 percent of the proceeds of their sales in Germany in free currencies, the currencies of international acceptance (a) in connection with sales of cotton, (b) in connection with sales of other commodities?
Under the arrangement, does either the Brazilian Government or the Bank of Brazil undertake to buy German goods in specified amounts, or Undertake other specified relations to German purchasers of Brazilian products?

From another angle, one provision outlined in your 115 is perplexing: “The German banks will sell 35 percent to the Bank of Brazil at official exchange rate and will be forced immediately to buy back the same funds at open market exchange rate”. Would this provision facilitate the sale of Brazilian goods to Germany, particularly of cotton? Department would welcome full interpretation.

Department would like your judgment as to whether the arrangement as far as outlined would constitute discrimination against American trade.

The Department’s point of view is that the Brazilian Government should take no action, whether through agreement with Germany or unilaterally, which would place trade with Germany and the blocked currencies in which it is transacted in a specially favored position as compared with the trade and currencies of non-compensation countries. The Department assumes that you are clearly keeping its point of view before the Brazilian authorities and indicating this Government’s substantial interest in the bearing of any of Brazil’s clearing agreements upon Brazilian-American trade and the Brazilian-American commercial agreement.7

  1. Reciprocal trade agreement between the United States and Brazil, signed February 2, 1935, Foreign Relations, 1935, vol. iv, p. 300.