Foreign Relations of the United States: Diplomatic Papers, 1942, The American Republics, Volume V

811.20 Defense (M) Brazil/959: Telegram

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

Washington, August 12, 1942—10 p.m.

2251. Your despatch 8073, July 31,⁶⁶ and telegrams 2832, August 1 and 2855, August 3.⁶⁷ There are certain distinct and important advantages which the present arrangements on Brazilian manufactured products afford to Brazil. In the first place, Brazil is assured a market for these products for the term of the contract at a price fixed by Brazil. Under the arrangements now in effect Rubber Reserve has purchased almost 3 million dollars worth of Brazilian tires. Rubber Reserve pays cash immediately. The manufacturer does not have to wait for shipping to be available before getting his money. Rubber Reserve buys the tires and puts them in warehouses and pays the warehouse charges, an arrangement which permits normal operations by the manufacturers unaffected by the shipping situation. The manufacturers in turn are able to keep their workers steadily employed. They are assured a guaranteed market for 5 years, at a time when Brazil’s consumption of tires has been tremendously reduced and when demand in the other countries cannot be considered assured. It seems to us unlikely that Brazil could obtain similar undertakings from other sources.

It should also be kept in mind that this Government is supplying to the manufacturers various materials required in tire manufacture, such as bead wire, which Brazil cannot obtain elsewhere. This Government is also giving sympathetic consideration to the application by the Goodyear Company of Brazil to export machinery for manufacturing rubber belting.

Acting in reliance on the arrangements worked out by Allen, and complied with in practice by the Brazilian authorities, Rubber Reserve has made commitments to furnish tires in specific amounts to Colombia, Peru and others. This Government also gave undertakings to all the other American Republics to supply their indispensable requirements for tires. See the Department’s circular telegram of May 18.⁶⁸ These undertakings were entered into at the urgent request of the Brazilian Government, and it was assumed the exportable surplus of Brazilian tires would be available to fill them. Even if the understanding set forth in Allen’s letter of May 2⁶⁹ was not formally acknowledged, there can be no ambiguity about the meaning of paragraph 7 of the March 3 agreement, which Bouças advised had been cleared by telephone with President Vargas. Moreover, the second paragraph of Allen’s memorandum handed to Souza Costa, Bouças and Truda on April 28⁷⁰ leaves no doubt as to the intentions and understanding of this Government in making the arrangements proposed to Brazil.

Aside from the advantages of the present system to Brazil and without regard to its contractual status, the following considerations appear to us to make the abandonment of the present system inadvisable.

1. This Government has no desire to limit or interfere with Brazil’s trade relations with the other American Republics, or to obtain control of any of those relations as such.

2. There is a limited and small amount of rubber products available for the indispensable needs of the American Republics. It is urgently necessary that the distribution of available supplies should be made equitably and based upon the essential wartime requirements of the countries.

3. The Brazilian Government will appreciate that an equitable distribution can be attained only through the exercise of adequate controls. A particular purchaser should not get a disproportionate number of tires. Information as to sizes and types must be considered in each case to determine whether the order is justified. Sales should not be made to undesirable purchasers. Shipments should be arranged so as to coordinate available shipping space with consumption needs. Supplies should be integrated so as to make a pool available to meet orders for various sizes and types. Otherwise there will be inefficiency in filling orders. Rubber Reserve is prepared to create that pool and to maintain balanced inventories.

4. It has taken this Government 2 years to establish adequate controls for exports from this country. Operation under the control machinery is understood and accepted by the various importing countries.

5. The establishment of quotas for exports from Brazil without further implementation is not sufficient. It is extremely doubtful whether Brazil would strictly uphold the quota system under the stress of diplomatic or internal political pressure. In any event certain requirements for tires and other rubber products must be furnished from this country (including, in the case of Brazil, tires for airplanes and other equipment for the Brazilian armed forces) because they cannot be manufactured in Brazil. Information as to shipments from Brazil and the United States must be coordinated so as to be available in passing on any particular shipment from either country.

6. The contract now being negotiated with Mexico⁷¹ contemplates that Mexico will sell to the United States its exportable surplus of manufactured products. Venezuela might conceivably become an exporter of tires. It is therefore quite clear that some single entity must administer the distribution of tires available for export from this country, Brazil, Mexico and any other exporting country.

7. A control system might be established in the Embassy, but this would result in duplication of personnel and in almost endless checking back and forth between the Embassy and the agencies here.

8. As a theoretical matter the administrative entity might best be an inter-American commission. It appears to us hopeless to expect that such a commission could function efficiently at any time in the near future. This Government is prepared to consider the establishment of such an agency if it is considered necessary. Until it is established, however, the disposition of tires from Brazil should remain subject to supervision by this Government, which is the only entity now in a position to provide that supervision.

9. The substance of the present arrangement is this: The Government of the country to which the tires are to be shipped issues a certificate of necessity to an importer in that country. The importer in turn forwards the certificate together with his order to an exporter either in Brazil or in this country. The exporter forwards an export application to the Office of Exports Control of the Board of Economic Warfare and if the order is approved Rubber Reserve sells the tires to the exporter who carries out the transaction with the importer. The exporter thus has all the contacts with the importer in the normal commercial manner, the transaction merely being subject to approval of the export here not with respect to its business aspects but for the purpose of maintaining an equitable distribution of a scarce material.

You will note that orders can be placed either with Brazilian exporters or exporters in this country. The latter were included because importers of tires in the consuming countries were accustomed to deal with exporters in this country and Brazil has not heretofore been an exporter of tires. This latter fact of course means that it is not accurate for Brazil to talk about maintaining normal trade relations. Brazil actually wants to build up new relations; this Government naturally has no opposition to this objective. If agreement to continued purchase and distribution of Brazilian tires by Rubber Reserve could be achieved through exclusion of exporters in this country, that would not be an insurmountable obstacle providing orders already placed and accepted by Rubber Reserve from exporters in this country are executed.

If it would be more satisfactory to the Brazilian Government to have the application filed with the Rubber Reserve office in Rio de Janeiro, that would be entirely acceptable here. Of course in that event the application would be forwarded to the Board of Economic Warfare here for consideration.

Rubber Reserve would also be entirely agreeable to making available to the appropriate Brazilian agencies information as to orders received, shipments made, etc.

10. In order to avoid implications of the kind referred to in paragraph 9 of the note from the Foreign Office of July 25, 1942,⁷² Brazil might notify the other Republics that the Governments of Brazil and of the United States have agreed that there would be available, in Brazil or in the United States, a specified quota for the next quarter and that such quotas might be obtained by following the procedure referred to above. In this way Brazil would get credit for supplying the needs and at the same time the orders would be subjected to the controls regarded here as necessary. Quotas for the next quarter have been sent with Rubber Reserve’s letter of August 1 to McAshan.

11. The substance of the foregoing is that it is desirable to continue the present arrangements, possibly excluding exporters in this country from the procedure and possibly providing for the filing of applications with the Rubber Reserve office in Rio. It is felt here that a change to a quota system administered by Brazil will result in a complete breakdown in the conservation program now well under way in the other American Republics.

Please inform McAshan and Micou of foregoing. It is concurred in by Ambassador Caffery, Donnelly, Rubber Reserve and Board of Economic Warfare.

(Please repeat to Allen.)

Hull

66. Not printed.
67. Telegram No. 2855 not printed.
68. Printed in vol. vi, section under Colombia entitled “Negotiation of an agreement between the Rubber Reserve Company and Colombia for the purchase of Colombia’s exportable surplus of rubber,”
69. See footnote 63, p. 708.
70. Not found in Department files.
71. For correspondence concerning these negotiations, see vol. vi, section under Mexico entitled “Agreement between the Rubber Reserve Company and Mexico …”
72. Not printed.