632.003/195: Telegram

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

122. Department’s 69, May 8, 7 p.m. I do not expect to see the Minister for Foreign Affairs before Tuesday evening when I shall be prepared to act upon the Department’s order. In the meantime, however, I venture to submit the following restatement of the case for the Department’s consideration.

The tax is considered by the Brazilian officials who have thus far examined the case (the Minister for Foreign Affairs, Minister of Finance and the economic experts of the Foreign Office) as a purely internal tax.
The American Chamber of Commerce and business community have been following this matter closely and the legal opinions taken by them are all in the sense that this is an internal tax.
The American Chamber of Commerce has from the outset played a leading role in the case. The views of the Chamber were made known to the Foreign Office by me. The Minister for Foreign Affairs had the question carefully examined with the result that he came to the conclusion that these views were entirely sound and on his own initiative he made representations to the Minister of Finance for the abolition of the tax (the Department will recall that this attitude on the part of the Minister for Foreign Affairs was reported in my despatch 993 of April 1.)53
Minister of Finance has repeatedly expressed himself as fully in agreement on this subject his failure to abolish the tax has resulted from no difficulty of principle but merely because certain subordinate officials have succeeded in obstructing the matter because they are reluctant to forego this source of revenue.
Prior to law 159 the quota de previdencia financed by a tax levied on domestic sales at rates from one-tenth to one-half of 1 per cent. As the present arrangement involved an increase of the tax to 2 per cent it was felt there would be protests from retailers and consumers and therefore resort was had to collection in the customhouse at the time of levying duties. The nature of the tax remains exactly as it was before.
The consumption tax which is purely internal is collected at the time of importation of tobacco, liquor, et cetera along with the customs taxes. If the simple expedient of collecting a tax (as a matter of convenience) at the time of importation makes it a customs tax article VII would appear to become void of significance. The Brazilian Government could impose internal taxes ad libitum and collect them on the wharf.
I am informed that practically every other nation represented here has made representations to the Foreign Office and all have been given assurances that the Minister for Foreign Affairs is in full agreement that this tax should be abolished.
The Argentine-Brazilian trade agreement54 is now awaiting ratification. It contains provisions similar to those in our treaty which are interpreted by the Argentine Government as incompatible with the imposition of this tax. There is an informal agreement that pending ratification there should be no increase of duties, taxes, et cetera. Accordingly the Embassy here has been instructed to exert strong pressure for the abolition of this tax.
Although this matter has been under discussion for several months this is the first time that the view has been advanced from any source that the tax is not in violation of both the letter and spirit of our agreement; this holds even for the junior officials in the Treasury who have obstructed the action desired by the Minister for Foreign Affairs and promised by the Minister of Finance not only to me but to other diplomatic representatives and the American Chamber of Commerce. It will be obvious that surprise and resentment will be caused if it becomes known that this tax has been maintained on the strength of a communication made by the American Government.
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I feel I should be remiss if I were not to restate the complications which will arise from the adoption of the course proposed. If however in the light of the foregoing the Department still desires to maintain its instruction under reference I shall of course lose no time in acting upon it.

  1. Not printed.
  2. Treaty of commerce and navigation, signed May 29, 1935, Argentine Republic, Ministerio de Relaciones Exteriores y Culto, Memoria, 1935–1936, vol. i, p. 715.