632.6231/237: Telegram

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

53. Your telegram 115, September 2, 1 [10] p.m. The Department notes with gratification that a definite commitment will be obtained from Germany against any direct subsidy in exports to Brazil. Will this commitment be a part of the published agreement?

As stated in its telegram no. 51 of September 2, 6 p.m., the Department does not desire to comment directly on specific details of the proposed German-Brazilian commercial agreement. It feels constrained, however, to state that, according to statistical material in your telegram it appears that the proposed Brazilian export quotas to Germany provide for an increase of compensation trade rather than a limitation of such trade. Accordingly, unless there should occur a considerable increase in Brazilian demand and purchasing power for foreign goods, it would seem that Brazil under these quota commitments would not be complying with the assurance given in the note from the Brazilian Ambassador in Washington of July 15 [14], 1937, namely, that compensation trade “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”. Accordingly, the Department inquires whether the proposed trade agreement will carry a provision for its modification if its actual operation should result in accumulating blocked balances in Germany which would tend artificially to stimulate Brazilian imports from that country.

Hull