Foreign Relations of the United States Diplomatic Papers, 1938, The American Republics, Volume V

611.3231/1264a

The Department of State to the Brazilian Embassy

Memorandum

The following points were discussed at the Department of State on June 8, 1938 by His Excellency the Brazilian Ambassador⁴ and the Under Secretary of State:⁵

1. In regard to the operation of the trade agreement between the United States and Brazil, the Government of the United States was pleased to be informed that effective May 23 the Bank of Brazil would, whenever it closed exchange,⁶ for the importation of goods from the United States, grant exchange without delay, instead of thirty-day exchange contracts as formerly, provided that drafts were forwarded to the Bank of Brazil for collection. It is understood that exchange has now been closed for draft maturities through May 10 upon this basis and that exchange contracts are being granted for daily quota requirements and for firms operating on open account for applications through May 10. The Department of State recalls that in the exchange of notes of February 2, 1935,⁷ interpretative of the trade agreement, the Brazilian Government stated that it would furnish sufficient exchange for the payments, as they became due, for all future importations of American products into Brazil. It is hoped that the Brazilian Exchange authorities will soon find it possible to grant exchange in accordance with the aforementioned undertaking.

The American Embassy at Rio de Janeiro has brought to the attention of the Brazilian Government the increased consumption taxes provided for by Decree-Law No. 301 of February 24, 1938⁸ in relation to certain provisions of the trade agreement and has been informed that the matter has been referred to a special committee for study. The Department of State is hopeful that a decision will soon be rendered by the committee as concern is being felt by United States exporters of goods mentioned in the Decree-Law.

2. With reference to the agreement on economic relations between the two countries embodied in the exchange of notes in Washington last summer, His Excellency the then Brazilian Ambassador⁹ in his note of July 14¹⁰ stated that the Brazilian Government would use every effort to assure that those goods imported into Brazil which might compete with the American products covered by the trade agreement should not be favored by any direct subsidy from the governments of exporting countries. This is a matter of much importance to the export interests of the United States and it has been discussed at considerable length between the American Embassy at Rio de Janeiro and officials of the Brazilian Government. It is understood, however, that Brazil continues to import substantial amounts of merchandise from at least one country which with slight disguise sustains a comprehensive system and practice of subsidizing exports through government-controlled agencies and that the Brazilian Government has been from time to time extending the operation of a compensation agreement with that country.

The same note of His Excellency the then Brazilian Ambassador recognized that trade through compensation currencies was a device which the Brazilian Government desired to discourage as soon as possible and stated that the Brazilian Government intended to regulate such trade in a manner to prevent the dislocation of trade with countries operating on the basis of free currencies. The reduction by the Bank of Brazil on February 3 last of the German compensation mark quotation from 15.50 to the pound sterling as compared with 15 as previously, and the further reduction of the quotation from 15 to 14.85 on May 17 appeared to have been within the policy agreed upon in the aforementioned note of the Brazilian Government. In as much as there still remains a considerable margin between the quotation of the German compensation mark and that of the Reichsmark, and since the American Embassy has been informed that the Bank of Brazil intended gradually to reduce this margin until the quotation of the compensation mark reached the level of the Reichsmark, it is presumed that further reductions will soon be made.

3. His Excellency the President of Brazil and other officials of the Brazilian Government have from time to time indicated that that Government had every intention of resuming service on its external debt as soon as economic conditions would permit.¹¹ In this connection it is recalled that a public statement issued on November 20 last by the office of His Excellency the President of Brazil stated that it had been decided to suspend of that date the remission of funds for external debt service and “to authorize the Minister of Finance to initiate negotiations with the interested parties in the various countries for the purpose of arriving at new agreements within the actual possibilities of the country.” It has been disappointing to the Government of the United States that notwithstanding the aforementioned statement conversations have not yet been initiated with the representatives of United States holders of bonds of the Brazilian Government and of its political subdivisions. The Government of the United States fully appreciates the exchange and other economic difficulties which the Brazilian Government has been experiencing in recent months but it does not perceive why the Brazilian Government considers it necessary to postpone further the initiation of the conversations mentioned above, and it is earnestly hopeful that such conversations may be commenced without further delay.

4. With reference to Brazilian Decree-Laws No. 366 of April 11, 1938,¹² and No. 395 of April 29, 1938,¹³ governing the petroleum industry and the marketing of petroleum and petroleum products in Brazil, it is confidently assumed that the rights of United States nationals adversely affected will be adequately protected by the Brazilian Government.

5. The Government of the United States hopes that the Government of Brazil and the governments of the other mediatory powers taking part in the Chaco Peace Conference¹⁴ may continue to cooperate closely and effectively to the end that Bolivia and Paraguay may be assisted to reach an early and direct settlement of the Chaco controversy. In the event of the failure of the present initiative for a direct settlement, the Government of the United States is of the opinion that the six mediatory governments should give immediate attention to drafting a specific program for future negotiations and to obtaining agreement thereto from the two parties.

6. The Government of the United States will continue to make available upon request from the Governments of Brazil and the other American Republics, insofar as the legislation and regulations of the United States Government permit, facilities and cooperation in matters relating to military and naval training. This cooperation, of course, must be upon a basis of absolute equality, and it rests upon the principle that it is to the interest of inter-American solidarity to have such assistance rendered by one American government to another, rather than by a non-American government.

7. In the broad field of inter-American cooperation, the Government of the United States is actively engaged in formulating and carrying out a comprehensive program. This includes such technical advice and assistance as it may be in a position to extend through making available the services of technical advisers in Government employ, upon the request of the other American Republics; exchanges of students and professors; and a number of subjects related to cultural interchange.

8. The Government of the United States hopes that the Intergovernmental Committee to deal with political refugees from Germany may be able to achieve concrete results in its efforts to facilitate the emigration from Germany of political refugees.¹⁵ It hopes that in this effort the American Republics will be able to cooperate effectively, and it expects to communicate in the near future to the participating governments the proposed agenda which will indicate the scope of the work and the contemplated procedure.

Washington , June 10, 1938.

4. Mario de Pimentel Brandão.
5. Sumner Welles.
6. See pp. 330 ff.
7. These notes form part of the reciprocal trade agreement of that date; for texts, see Department of State Executive Agreement Series No. 82, or 49 Stat. 3808; see also Foreign Relations, 1935, vol. iv, pp. 300 ff.
8. Brazil, Collecção das Leis da Repúlica dos Estados Unidos do Brasil de 1938 (Rio de Janeiro, 1939), vol. i, pp. 251–431.
9. Oswaldo Aranha.
10. Foreign Relations, 1937, vol. v, p. 334.
11. See Foreign Relations, 1937, vol. v, pp. 350 ff.
12. Brazil, Collecção das Lets da República … 1938, vol. ii, pp. 33–38.
13. Ibid., pp. 72–73.
14. See pp. 89 ff.
15. See vol. i, pp. 758 ff.