832.5034/35
The Chargé in Brazil (Scotten) to the Secretary of State
[Received June 1.]
Sir: I have the honor to transmit herewith a copy of a letter dated May 18, 1937,66 received by the Embassy from the local representative of the du Pont interests, requesting that the Embassy make representations with a view to having eliminated from pending legislation provisions to restrict to native-born Brazilians the ownership of shares of corporations established in Brazil to deal in electro-chemical products, metallurgy and explosives.
The measures to which the enclosed letter objects are two suggested amendments to bill No. 424 of 1936, which proposes to regulate the establishment and functioning of corporate organizations (sociedades anonym as) in Brazil. The amendments in question were introduced in the Chamber of Deputies on January 8, 1937, by Deputy Henrique Lage, after the bill as a whole had passed its second reading. They were referred to the Chamber Committee on the Constitution and Justice. It is understood that the Committee has not yet reported upon them, but, once it does, final legislative action will probably not be long delayed since the bill only requires a third reading for passage by the Chamber.
Copies and translations of the two pertinent amendments are enclosed.66 It will be noted that the first amendment provides that corporations intended for the carrying out of operations of interest to the national defense of Brazil, “such as navigation, naval construction, siderurgy, electro-chemistry, mining, (the manufacture [Page 372] of) war material and explosives, can only be formed by shares made out in the name of the owners (which must be) the property of native-born Brazilians.” This amendment by itself would apparently not affect corporations already legally established in Brazil, although it would interfere with the incorporation of the new company to take over the du Pont business in Brazil, Industrias Chimicas Brasileiras “Duperial”, S. A., if the amendment were enacted into law and the legal steps for incorporation were not completed before that occurred.
The second amendment, however, which provides that “the peremptory provisions of this law are applicable to all corporations in operation,” if enacted would apparently prevent any foreign capital in the Brazilian industries mentioned, whether the corporations involved were or were not already legally constituted.
It will be further noted that the author of the amendments is a class deputy who is a member of a leading Brazilian industrial family which has extensive interests in coastwise navigation, ship construction and mining. Mr. Lage’s personal interest in pushing these amendments is obvious. The Embassy is not in a position to judge at the present time as to the chances of passage of the amendments, although they do not seem to be consistent with the President’s many pronouncements during the past two years as to the desire of his administration to attract foreign capital.
The British Ambassador informed me a few days ago that he had presented a short aide-mémoire to the Brazilian Foreign Office, commenting upon the pending legislation and expressing the expectation that the interests of British companies already established in Brazil would be adequately protected in any measure which might be enacted into law.
I should appreciate it if the Department could instruct me as to the nature of representations, if any, which I should make in the premises. In view of the advanced state of the bill, a telegraphic reply is requested.
In this connection it should be noted that the new corporate entity to operate in Brazil and take over the du Pont interests in this country, Industrias Chimicas Brasileiras “Duperial”, S. A., will be a joint subsidiary of the E. I. du Pont de Nemours Company and the Imperial Chemical Industries. The Embassy is not informed as to what share each of the parent companies will have in the Brazilian corporation.
This is, of course, an example of the complex international corporate structure which many American companies are developing abroad and is but one of several cases in Brazil. It would consequently be of material assistance to the Embassy if it could be advised whether any definite policy has been formulated by the Department [Page 373] as to the extent to which protection should be accorded to American interests when so closely interwoven with other “foreign” interests and operating through local subsidiaries organized under local laws.
Although a number of British-owned or controlled companies would seem to be affected by the two Lage amendments, the only American interests which have approached the Embassy for assistance in the matter so far are the du Pont interests and then only after the local representative’s attention was called to the pending legislation by a member of the Embassy staff as he was, from all indications, unaware of it. The language of the amendments is sufficiently vague so that it is not clear whether other American interests would be prejudiced although some, such as the manganese subsidiary of the United States Steel Products Corporation, holding mining properties, would probably fall under their provisions.
The Itabira Iron Mines concession, the local promoter of which is Mr. Percival Farquhar, an American citizen, and which has aroused much antagonism in nationalistic Brazilian circles, including the Lage interests, would likewise apparently be prevented, at least in part. Mr. Farquhar now claims that sixty per cent of the capital involved in the Itabira project is American although the parent organization is understood to be incorporated in Great Britain. In the past, Mr. Farquhar has several times attempted to secure the Embassy’s aid in representations to the Brazilian authorities in behalf of his group but has always been vague as to his financial backing and refused to divulge its source.
Respectfully yours,