632.6231/262: Telegram
The Acting Secretary of State to the Ambassador in Brazil (Caffery)
66. Your despatch no. 108, October 23, 1937.36 You are authorized to say to the Foreign Minister that, without commenting at this time upon other provisions of the note sent by the German Embassy to the Brazilian Foreign Office on October 18,37 this Government does not fully comprehend the purport of the statement appearing in the eighth item to the effect that the German Government is not granting and does not intend to grant subsidies on exports.
It is understood that most or all of the direct subsidies which are paid upon German exports are paid from a fund which is contributed, in the form of voluntary self-aid, by German industries. In this sense it may be nominally true that the German Government is not granting subsidies on exports. There can be no doubt, however, that contributions are in fact obligatory and that the organization administering distributions from this fund is under full control of agencies of the German Government and that its decisions are dictated by German Government policy. The ability of the German Government to assume responsibility for the administration of so-called private subsidies is clearly evidenced by the assurances which that Government gave to this Government last year that no public or private subsidies would be paid with respect to German exports to the United States.
You may say that the Department had in mind the foregoing system of subsidies and discussed it with members of the Brazilian Financial Mission in the conversations leading up to the agreement embodied in the exchange of notes last July. It is the view of this Government that the subsidization of exports by any organization, with the approval of and subject to the control of the German Government, [Page 346] cannot be distinguished in its disadvantageous effects upon the export trade of other countries from direct governmentally bestowed subsidies and is as inconsistent as any other form of subsidy with the objectives of the conversations and the exchange of notes of last summer.
You are requested to ask the Foreign Minister whether the assurances given in the German counter proposal in regard to direct subsidies are to be construed as covering bounties and subsidies paid by organizations functioning under or in close cooperation with the German Government.
It is also observed that although the German Government undertakes to declare that it does not intend to pay subsidies in the future on exports to Brazil, this is only a statement of intention as of the present moment, and that there is explicit statement that the German Government cannot assume the contractual obligation not to take such measures in the future if it should regard them as necessary to restore competitive balance. The proposed German formula thus lacks the binding character of the promise given to the United States in 1936.
You should inquire, therefore, whether under the proposed agreement the Brazilian Government will reserve full freedom of action to comply with its commitments to the United States as regards subsidized competition in the event that the German Government should depart from its announced intention not to subsidize exports.
Please report by telegraph the results of your conversation.