632.6231/291: Telegram

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

20. Your telegrams Nos. 27 and 28, February 2, 4 p.m. and 6 p.m. The Department has repeatedly indicated to the Brazilian Government its hope that that Government would at an early date find it possible to eliminate all elements of compensation from its commercial relations. It would therefore view with gratification efforts of the Brazilian Government to restrict special compensation currencies or to prevent such currencies from being utilized at rates more favorable than the rates obtaining for free currencies.

At the present time, however, the Department is more immediately concerned with the questions of subsidized trade and of delayed payments for imports of American products than it is with the complete elimination of the differential between the rate for the compensation mark and the rate for the Reichsmark. The Department feels that no undertaking with respect to the rate for the compensation mark, even if it were to be made identical with the rate for the Reichsmark, could be a satisfactory substitute for an assurance regarding the subsidization of goods imported into Brazil in competition with American goods included in Schedule I of the trade agreement. There would be no assurance that an appreciation in the rate for the compensation mark would not be offset by a corresponding increase in the amount of subsidies bestowed on German exports.

Accordingly, you should say to Aranha and to the other Brazilian [Page 390] officials in discussions upon this point that the Department places primary importance upon the assurance with respect to subsidies and upon assurance that the compensation mark will not be permitted to fluctuate significantly nor to depreciate significantly as compared to the dollar. If, in addition to this, the Brazilian Government is disposed further to restrict the compensation mark by increasing its value as compared to the Reichsmark or by circumscribing its uses, that would of course be highly satisfactory to this Government.