632.6231/59: Telegram

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

140. Department’s 79, May 31, 8 p.m.

Following are the last figures available on exports to Germany. They cover calendar year 1935: Cotton 83,329 tons, meats 50 tons, Brazil nuts 3,186 tons, bananas 102 tons, tobacco 17,160 tons, oranges 16,680 cases, coffee 871,007 sacks. The agreement not to reexport applies to all articles on the quota list and not only to coffee. Those figures should be compared with the figures given in my 139, May 30, 2 [3] p.m.
The above comparison provides, with the exception of cotton, a distinct upward revision of Brazilian export trade to Germany. This is frankly regarded by the Brazilian Government as a remarkably advantageous offer, much better than they had hoped for. The Germans appear to have combined enticing offers as regards purchases with threatening methods concerning articles to be put on the restricted list.
The Department’s understanding is correct that Germany may make purchases in excess of the quotas by paying in currency of international acceptance although this is not considered as probable.
The foregoing figures relate to quantities and indicate an upward trend. As now we can estimate, however, on a basis of money values, the increase will be much slighter.
As regards coffee, the apparent increase is somewhat misleading inasmuch as the 1935 figures were unusually low due to the Germany [Page 262] restrictions and the fact that considerable stocks of coffee had been accumulated by Germany in the latter part of 1934.
The reduction in the exportation of cotton appears to represent a Brazilian concession to what they believe to be our chief concern. Rightly or wrongly, they feel that in restricting their exportation of cotton to Germany, they have deferred to our interest.
Furthermore, they feel that they have gone a long way toward protecting our markets by limitation of the essentially American article [s] itemized in the list (to this list they have now added calculating machines). They have failed to realize, however, that precisely by listing these on the basis of the last 12 months plus 10 per cent, they are consolidating the German gains already made at the expense of American business during this particularly unfavorable period. In the course of conversation, I have brought this to their attention.
The agreement appears to be curiously constructed. The quotas set by Germany for purchases from Brazil constitute for all practical purposes a promise to purchase those quantities. On the other hand, it is prescribed that certain Brazilian imports from Germany are to be based on the maximum quantities imported in the last 12 months last preceding signature of the agreement with an increase of 10 per cent; in other words, the Brazilians are agreeing to permit importation of the articles listed in amounts which it will not be possible to calculate accurately until some time after the signature. All other Brazilian products are free from quota restrictions which is regarded here as an important concession.
The quantities of German articles other than those specified in the agreement which will be importable into Brazil will depend upon the amount of compensation marks remaining to Brazil’s credit after the specified articles have had their quotas filled. As to individual items of these unlisted products, the amounts will be determined by agreement between the Bank of Brazil and the Ministry of Finance. In other words, the specific quantities of German merchandise which will enter Brazil are not set forth in the agreement and cannot be calculated at this time except roughly as to the listed articles.
As nearly as I can ascertain from the Brazilian authorities, they have been dazzled by the tempting opportunity to dispose of increased quantities of their commodities to Germany. It is clear, however, that they have not given adequate weight (a) to the effect of this agreement upon the broader principles of international trade to which they profess their devotion; (b) to the political effect upon relations with other countries including the United States; (c) to the inevitable effect of such an agreement in lessening the amount of available exchange for debt service and purchases abroad.
I have seen the Foreign Minister again this afternoon in order to make very sure that signature of the agreement is being held in abeyance until the Department has an opportunity to formulate its views. I have ascertained that the memorandum I have telegraphed with the slight modifications set forth in this telegram contains practically the exact text of agreement with the exception of the preamble. I do not contemplate furnishing any further text on that subject and shall await an expression of the Department’s views to convey to Macedo Soares as to the effect of the proposed agreement on our own treaty rights.
As to the effect on American business it is difficult to avoid the conclusion that if this agreement goes through the pronounced German progress already realized at our expense will be accentuated; that within a relatively short period we may expect to see Germany occupying first place instead of the United States and that various American enterprises will be forced out of this market.