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

No. 985

Sir: I have the honor to refer to the Department’s Instruction No. 479, of March 13, 1936,48 enclosing copy of a letter from the General Motors of Brazil to the General Motors Export Company at New York, regarding a new social welfare tax of 2% on the imported value of all merchandise entering Brazil.

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Law 159, of December 30, 1935, establishing this tax, is entitled “Regulating the Contribution for the Formation of the Assets of the Institutes and Pension Funds Under the Jurisdiction of the National Labor Council”, Article 6 of the law reads: “There is hereby created, under the title of Social Welfare Tax, a payment of 2% of the value, in whatever form it may be made, of all articles imported from abroad excepting, for this purpose, fuel and wheat”.

Although this law has been known to the Embassy since its publication in the Diario Official on January 6, 1936, it was not deemed advisable to make any immediate representations to the authorities, inasmuch as no provision was made for the collection of the tax. However, decree No. 591 of January 15, 1936, regulating the law in question, was published in the Diario Official of January 24 and, inasmuch as no mention is made in that decree of the exemptions inherent under the terms of the Brazilian American Trade Agreement,49 I took this matter up informally with the Foreign Office.

Attention was invited to articles 3 and 7 of our Agreement, which clearly exempt all American imports from a tax of this nature. The Secretary General of the Foreign Office entirely agreed that the law in question constituted a violation of the Trade Agreement and, in view of the fact that the Minister for Foreign Affairs50 was absent in Sao Paulo, personally consulted with the President on this subject. As a result, on January 30, 1936, the President, by Federal decree, suspended the collection of the 2% tax for fifteen days in order to formulate additional legislation which would provide for exemptions not contemplated in the original law.

Subsequently decree No. 643 of February 14, 1936, was issued and published in the Diario Official of February 21, 1936, specifically exempting all articles specified in Schedule I of the Brazilian American Trade Agreement. This exemption presumably was based on article 3 of the Agreement without taking into consideration article 7, which clearly exempts all American merchandise from any internal taxes, etc., levied after importation, over or higher than those payable on like articles of national or foreign origin.

I again called the attention of the Foreign Office to this question and pointed out that the decree of February 14 was only partly satisfactory inasmuch as only a very small number of the American articles imported into Brazil are included in Schedule I. The Foreign Office was in thorough agreement on this point and stated that they would immediately inform the Ministry of Finance that an additional decree was necessary in order to include the exemption of all American imports as clearly specified in Article 7.

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The Foreign Office at first felt that this would be a routine matter, but much to their surprise they have encountered rather tenacious opposition on the part of a Treasury Department official who is insisting upon interpreting the Trade Agreement in a manner calculated to deny all American importations exemption of the tax and limiting it to the articles mentioned in Schedule I.

The Minister for Foreign Affairs has now personally interested himself in this case and has presented the views of the Foreign Office to the Minister of Finance, which are entirely in conformity with our own, together with his personal recommendation that a supplementary circular be issued taking care of this additional exemption.

I have purposely avoided any contact with the Ministry of Finance in this connection inasmuch as the Ministry for Foreign Affairs are entirely in accord that all American imports are automatically exempt from the operation of this tax, and because they have taken the stand that under Brazilian law they have the sole prerogative to interpret international treaties and agreements, and desire to make a test case of this issue. I have, however, impressed upon the Minister for Foreign Affairs the importance of getting a favorable decision as quickly as possible. He stated that he would personally speak to the Minister of Finance and, if necessary, the President, within the next few days, and I am therefore hopeful that this matter will be liquidated in the near future.

In compliance with the last paragraph of the Department’s Instruction, I am informing the Managing Director of the General Motors of Brazil at Sao Paulo that inasmuch as the products of his company are listed on Schedule I of the Agreement, they are already exempt from the operation of this tax under decree No. 643 of February 14, 1936.

Respectfully yours,

Hugh Gibson
  1. Not printed.
  2. Signed February 2, 1935; for text, see Executive Agreement Series No. 82, or 49 Stat 3808.
  3. Jose Carlos de Macedo Soares.