The Ambassador in Brazil (Gibson) to the Secretary of State
[Received July 17—5:52 p.m.]
168. For Assistant Secretary Welles. The inquiries reported in my telegram 167, July 17, 5 p.m. (which I sent separately in order that you might show it, if you so desired, to Aranha22 were prompted by information I had just received from an entirely reliable source that Macedo was negotiating with Italy an arrangement similar to that made with Germany and that it was expected to be concluded by Monday, the 20th.
During my conversation with Macedo he did not appear altogether comfortable and since his remarks were almost verbatim what he told me in connection with the German negotiations I am sorry to say that they did not carry much conviction.
Since my interview of this morning I have learned in strict confidence that the written instructions issued by the Minister of Finance for setting up the board to supervise and control imports and exports under the new proposition contain the definite statement that in organizing this board it should be borne in mind that the arrangements [Page 275] to be negotiated with other countries would follow the general lines of the arrangement with Germany.
I was also afforded an opportunity to examine the minutes of a confidential meeting of the Federal Foreign Trade Council in which Macedo Soares stated that arrangements would shortly be concluded with Italy and Spain on a compensation basis. He also stated in the course of a rather sharp interchange with Valentim Boucas23 who raised the question of possible American objection to such a course and alluded to possible retaliatory measures that he felt he was fully covered with respect to the United States and that no matter what was said he was confident that the American Government would never adopt reprisals against Brazil.
Macedo apparently feels that our failure to protest the form in which the arrangement was entered into with Germany implies our acquiescence with the substance of the agreement itself. This impression may have been strengthened within the last few days by Havas despatches Washington quoting interview with Aranha to the effect that he has satisfactorily dissipated any doubts the Department had regarding the German-Brazilian arrangement.
In spite of the assurances given us by Macedo in his memorandum (my telegram 146, June 6, 7 p.m.24) in his interview with American press agencies (my despatch No. 108025) and in his remarks before the committee on Foreign Affairs (my despatch No. 108825) which put him clearly on record against the compensation system, there is no escaping the fact that in practice he is now heading for general compensation arrangements which are bound to be disastrous to American trade whether they be in the form of treaties or of unilateral declarations.
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My informant intimates that the arrangement with Italy is practically concluded, and, in view of previous experience, I feel that no time is to be lost. You may agree that it would be well to consult Aranha on this subject and suggest that he communicate direct with the President as to the consequences of any such general compensation program. …