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

No. 350

Sir: I have the honor to transmit, for the information of the Department, a memorandum of a conversation between the Counselor of the Embassy and Senhor Barbosa Carneiro, the Chief of the Commercial Section of the Foreign Office on the compensation mark situation.

Respectfully yours,

For the Ambassador:
R. M. Scotten

Counselor of Embassy

Memorandum by the Counselor of Embassy in Brazil (Scotten)

I inquired of Barbosa Carneiro this morning what the possibilities are of securing the Germans’ consent to agree to discontinue indirect subsidies. He replied that he was convinced there was no chance whatsoever of the Germans agreeing to prohibit subsidies from their export subsidy organization. He added that he had discussed this matter at length with the German Ambassador on several occasions. The latter freely admitted that German exporters were receiving assistance from German industry. The Ambassador took the point of view that this was not assistance from the German Government, and since it was rendered by German industry itself, it was purely and simply a German internal matter to which no other country had the right to object. The Ambassador added that if the Brazilian exporters wished to sell their coffee at a loss, this was something which the Germans could not object to, and he challenged the right of Brazil to object to the present practice.

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Barbosa Carneiro stated that with this attitude of the Germans he saw no use in trying to push this matter further. He added that the objective of Brazil was to limit the field of German possibility of competing unfairly with other countries and principally the United States. This could be achieved in one of two ways: either by obtaining the assurances which we were asking, or by the imposition of quotas upon German imports into Brazil. Since the first method is in his opinion impossible to obtain, he believes that Brazil should attempt the second method.

I at once pointed out that although of course it would be impossible to discuss the exact merits of such a method without seeing figures, etc., I was very skeptical of its efficacy in view of the fact that it envisaged also the imposition of quotas by Brazil on her own exports. He replied that Brazil had already placed those quotas. I answered that the quotas meant absolutely nothing, as far as American trade was concerned, because they were quotas based upon the maximum sale of Brazilian products to Germany and do not envisage any practical restriction on German trade. I stated furthermore that, as he well knew, it was not the policy of the United States to attempt to restrict Brazilian-German trade; on the contrary we would welcome its expansion, provided it was carried on in a normal way and provided our goods could compete with German goods under a fair system of commercial competition.

After reflecting a minute, he said, “Yes, of course you are right, providing the quotas on Brazilian exports remain as large as they are at present; but I have in mind recommending an actual diminution of those quotas so as to bring about a practical limitation of German trade.” He added that of course it would be a very serious thing to put this system into effect, as, if Brazil did it with Germany, she would also have to impose quotas on goods from Italy and possibly Japan, and even France. I again stated that I was frankly very skeptical of any good which the United States would obtain from such a system. I recalled that we had received from Macedo Soares78 in 1936 a positive assurance that Brazilian-German trade on a compensation basis would be restrained within normal limits.79 Furthermore, we had been assured by Macedo Soares that the importation of certain products from Germany, which especially competed with American products, such as typewriters, etc., would be restricted to the 1934 figures. I stated that we were unable to see that either of these assurances had been carried out, and as far as we could see there had not been the slightest attempt on the part of Brazil to control this trade. He looked very uncomfortable, but admitted that this was a fact. He [Page 392] added that machinery would have to be set up to control this trade. I then recalled that we had been assured that machinery would be set up in the form of a Control Board headed by João Lourenço and that although this Board had been in existence for two years, we were unable to see that it had done the slightest thing. Barbosa Carneiro frankly admitted this to be a fact. He repeated that he would urge upon the Minister of Finance the necessity of the imposition of quotas on German imports, and then stated that this was the same recommendation that he had made before the Financial Mission went to Washington.

I then recalled that the German-Brazilian agreement80 had expired last June, and that almost a year had gone by and Brazil and Germany were actually still operating under the old agreement. I stated that our telegrams from Washington clearly indicated that the State Department felt that Brazil was not playing ball with us on this subject. Barbosa Carneiro again looked uncomfortable, and then brought forth the usual argument that every time there is any attempt to make the Germans do anything, the German Embassy gets its agents, who are business men all over the country, to flood the Ministries of Foreign Affairs and Finance with letters. He stated that already the tobacco exporters and cotton exporters are complaining that Germany is not granting import licenses for their tobacco and cotton, and that every day he receives several letters in favor of continuing the German compensation arrangement.

I stated that I felt that Brazil was entirely too much afraid of the attitude of the Germans, and that should Brazil actually bring herself to the point of taking action in this matter she would find that the Germans considered the Brazilian market to be just as important as the Brazilians considered the German market to be.

I repeat that all through my conversation Barbosa Carneiro was most unhappy and uncomfortable, and I received the distinct impression that he was at a loss as to what to say and that for his part, at least, nothing much will be done to rectify the situation in our favor.

  1. José Carlos de Macedo Soares, then Brazilian Minister for Foreign Affairs.
  2. See telegram No. 146, June 6, 1936, from the Ambassador in Brazil, quoting memorandum from Macedo Soares, Foreign Relations, 1936, vol. v, p. 264.
  3. Signed June 6, 1936; renewed June 16, 1937, for 3 months; see Wileman’s Brazilian Review, July 13, 1936, p. 32.