632.6231/236: Telegram

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

51. Your 112, August 31, 1 p.m. The Department does not care to comment directly on specific details of a German-Brazilian commercial agreement. When the Brazilian mission was here, common understanding was firmly established that this Government does not seek in any way a limitation of trade between Brazil and Germany [Page 339] which is conducted on lines of sound and normal economic competition; that Brazil, no less than the United States, will seek to discourage and restrict, so far as possible, the various arbitrary trade control devices; and that it will, on a non-preferential basis, endeavor to safeguard the principles and benefits of the trade agreement with the United States. The particular means of achieving these objectives are properly matters for the decision of Brazilian authorities. Within these limits the following comments of a general nature seem pertinent.

1. The Department places the utmost importance upon the assurance conveyed to you by the Foreign Office that an article will be included in whatever arrangement is concluded to take care of the problem of German subsidization. Whatever the type of action envisaged, the Department trusts that it will be both specific and comprehensive.

2. This Government does not feel that it should discuss the details of the measures to be taken to regulate compensation trading. Whether the desired regulations should be effected by export quotas or by some other method is a matter for the Brazilian Government to determine. Presumably the objective of restriction of trade in compensation currencies would be the prevention of the accumulation of blocked currencies to an extent which would tend artificially to stimulate imports from the country in which payments are blocked in order to liquidate blocked balances or to forestall further accumulation.

This Government anticipates, however, that whatever measures are decided upon, the proposed agreement with Germany will be so framed as to enable Brazil fully to comply with the assurance given in the note from the Brazilian Ambassador of July 15 [14], namely: “… the Brazilian Government intends that trade through compensating procedures, being susceptible of creating a situation which introduces difficulty into the trade with countries having a regime of currency of free international circulation, should be so regulated as to prevent the dislocation of trade with the countries carried out in free currencies and on a basis of equality.”

3. In view of the continuing upward trend in international trade and in world prices, it is to be hoped that the world may witness a steady decline in those devices, such as compensation arrangements, quotas, etc., which have been defended on grounds of necessity. For this reason, a short period for an arrangement embodying such devices, even though for the purpose of limiting them, would afford an earlier opportunity for again examining its operation with a view to determining whether a further advance may not be made toward more liberal and normal trade relations. This Government again wishes to express to the Government of Brazil the hope that it may prove possible at an early date for that country to lay the basis for increased, rather than stabilized or decreased, trade with Germany along lines of normal economic advantage.

The general views of the Department as above outlined were set forth to the Brazilian Ambassador yesterday. The Ambassador stated [Page 340] in the most emphatic terms his confidence in the Minister of Finance and in his judgment in this matter. He stated that the Minister, because of his visit to Washington, must understand much more clearly than the Minister for Foreign Affairs the objectives of the conversations held here. He felt sure that the Minister of Finance would act in the best of faith. With regard to the question whether the agreement should run 6 months or a year the Ambassador stated as his personal opinion that it would not be practical to limit the duration to less than a crop year.

The Ambassador states he has cabled the Minister of Finance suggesting he get in touch with you in the matter.

Hull