The Secretary of State to the Ambassador in Brazil (Gibson)
Sir: The Department acknowledges the receipt of your telegram No. 149 of June 8, 6 p.m. in which you refer to the pressure in Brazil for conclusion of exclusive bilateral trade and payments arrangements with other countries and ask to be furnished with available material on this general subject and instructions as to the Department’s desiderata in this connection. You report that the Chief of the Government’s Statistical Bureau at a recent meeting of the Federal Foreign Trade Council submitted figures to demonstrate that American objections to the conclusion by Brazil of a “compensation mark” agreement with Germany was prompted by the desire to exclude Brazil from the German market for its cotton.
In regard to the latter assertion you are informed that the Department’s action in discussing with the Brazilian Government its proposed compensation agreement with Germany was not motivated by any idea of seeking special competitive advantages or safeguards for American trade in either Brazil or Germany. It seems apparent that any Brazilian cotton withheld from export to any one market will undoubtedly be offered in competition with American cotton in others.
The interest of this Government, which has cooperated with Brazil to promote general adoption of liberal commercial policy, was in the effect on the progress of this policy of Brazil’s committing itself by the proposed agreement with Germany, to acceptance of the counter policy of trade bilateralism, thereby possibly limiting its liberty to take such effective action against bilateralistic trade practices as later developments might make practical and advisable in Brazil’s own interest and the general interest of international trade and welfare.
While the Department inclines to the belief that systems of bilateral balancing of trade effected through such devices as clearing and compensation agreements and exchange blockage, will eventually be rejected by countries practicing them because of their inherent defects and disadvantages, such systems may be continued as long as these [Page 273] countries can induce important trading nations to agree to such terms of trade. It is obvious that general adoption of a policy of trade bilateralism would be counter to the interests of all countries and particularly injurious to countries which, like Brazil, require a favorable trade balance in order to effect the various non-commercial payments which they desire to make abroad.
From your No. 117 of April 24, 5 p.m., and No. 121 of May 7, 3 p.m., the Department had understood that the proposed action of limiting the sale of cotton to markets where payment is made in blocked exchange, was to be taken in view of the greater advantage to Brazil of selling its cotton in markets which paid in international exchange, which can be used freely to make whatever purchases and payment it desires. The Department understood that the Brazilian Government also had in mind the advantage of not making its cotton industry dependent on the single insecure market of a country the government of which has been pursuing a policy of frequent diversion of trade for political purposes and of using any strong trading position which it may acquire vis-à-vis another country to compel such country either to make unneeded purchases of goods or submit to blockage of the funds of its nationals.
In this connection, you are informed that the Argentine Exchange Control is recently reported to have deliberately restricted Argentine exports to Germany in order to liquidate blocked balances in that country and to prevent the accumulation of new frozen credits which can only be liquidated by greater quantities of German merchandise than the Argentine market desires to absorb.
Very truly yours,