The Secretary of State to the Ambassador in Brazil (Caffery)
Sir: Reference is made to the Embassy’s despatch no. 15534, of April 24, 1944,64 concerning a new measure of the Bank of Brazil which requires that all exchange applications be accompanied by proof that the Carteira de Exportação e Importação is in accord with the importation for which the exchange is to be used.
The Embassy states that the ostensible reason for the measure is to be found in past references by the Director of the Carteira de Exportação e Importação to Brazil’s desire to control the exchange balances which it has built up in recent years, so that they will be used for articles considered essential to Brazil. The Embassy further expresses the opinion that the real purpose of the measure is to prevent the dumping of foreign merchandise in Brazil, and that there is a danger that Brazil will use the control to prevent the importation of products which the Bank of Brazil considers not essential to Brazil’s economy and to protect local manufacturers.
The Director of the Carteira is quoted as having stated, to a representative of the Embassy, that the measure “is not a control measure because the Bank of Brazil is not authorized by law to control imports into Brazil and it is designed only to keep the Carteira fully informed of all imports into Brazil”. The Embassy’s despatch also indicates that the Director referred to it on the same occasion as “a means of protecting her [Brazil’s]65 wartime economy”, and that he avoided discussion of the points set forth in the preceding paragraph, although he indicated that the Bank would consider them in passing on all applications for the purchase of foreign exchange.
The Department and other agencies of this Government, as well as members of the export trade doing business with Brazil, share the apprehensions of the Embassy as to the possible uses of the measure. The Embassy’s despatch no. 15919 of May 17, 1944,64 setting forth the circumstances which required the intervention of the Embassy in order to obtain approval of an exchange application for American whiskey, is evidence that these apprehensions are not groundless. Before addressing specific instructions to the Embassy with respect [Page 658] to the measure, however, the Department desires to receive the Embassy’s views as to the timeliness of an official approach to the Brazilian Government on the subject. If the Embassy is of the opinion that the measure should not be made the subject of protest at an early date, the Department desires to be fully informed as to the reasons which lead to this opinion.
The Department also desires to be informed of the reaction of Brazilian importers to this new control measure, inasmuch as it affects their interests as well as those of foreign exporters, and of any action which Brazilian importers or trade groups may be taking with a view to obtaining the rescission of the measure.
The following observations with respect to commercial policy implications of the measure are based on informal study of the information thus far available to the Department. They are transmitted to the Embassy for its information, and as background material for use by the Embassy, in its discretion, in conversations with the appropriate Brazilian authorities with respect to the purposes and uses of the measure.
The Department finds it difficult to reconcile the statement of the Director of the Carteira that the new measure “is not a control measure because the Bank of Brazil is not authorized by law to control imports into Brazil, and it is designed only to keep the Carteira fully informed of all imports into Brazil” with (1) the statement in the Bank’s instruction that exchange authorizations will be granted only when applications are accompanied by proof that the Carteira is in accord with the importation for which the payment is intended, (2) the Director’s reference to it as a measure for protecting Brazil’s wartime economy, (3) past statements of Brazil’s desire to control exchange balances to the end that they will be used for articles considered essential to Brazil, (4) the Director’s avoidance of discussion of the possible use of the measure to protect local manufacturers and to prevent importation of products which the Bank considers not essential to Brazil’s economy, while indicating that the Bank would consider them in passing on all applications for foreign exchange, and (5) the Bank’s rejection of an application covering window glass on the ground that adequate supplies were available in Brazil, and its more recent rejection (subsequently rescinded) of an exchange application covering American whiskey.
If the measure is merely for informational purposes, it would seem that a post-review of applications would suffice and that a prior review would scarcely be necessary. In any event, it is not apparent what information would be obtained by review, whether prior or post, which is not already available from other sources.
With respect to the Director’s reference to use of the measure for protecting Brazil’s wartime economy, it seems clear that the measure [Page 659] is being initiated at a time when emphasis might be placed more logically on the progressive diminution and elimination of wartime controls, as rapidly as wartime conditions permit, in anticipation of efforts to revitalize and augment international trade in the post-war period. As the Embassy and the Brazilian Government are aware, it is the policy of the Government of the United States to remove wartime trade controls as soon as they are no longer necessary in connection with the war effort, and to simplify those which remain necessary. This Government considers the implementation of this policy important not only to relieve foreign traders here and abroad from the burden of unnecessary restrictions and formalities but also as a necessary preliminary step looking toward the general relaxation of barriers to trade without which post-war world trade relationships cannot be reestablished on a sound basis.
With regard to the possible use of the exchange control measure to insure that foreign exchange balances are used for “articles considered essential to Brazil”, it is the Department’s view that exchange control on commercial transactions should be avoided if it is at all possible to do so because such control inevitably tends to restrict trade, not solely for balance-of-payments reasons but also for reasons of protection of domestic producers against foreign competition. Most countries which have established such control have done so because of emergency balance-of-payments situations. The large reserves of foreign exchange which Brazil has accumulated during the war would appear to make the measure unnecessary at this time for balance-of-payments purposes; furthermore, it is not to be supposed that with the termination of hostilities Brazilian exports will necessarily decline sharply.
Were the new regulations applied in a restrictive manner with respect to commodities which are included in Schedule I67 of the Reciprocal Trade Agreement between the United States and Brazil, they would, of course, impair the value of these concessions. In any case, the measure appears to be contrary to the spirit of the Agreement and its appended notes with respect to exchange control, as well as its stated purpose of giving “effect to the principles embodied in the Resolution on economic, commercial and tariff policies approved on December 16, 1933, by the Seventh International Conference of American States.”68
It appears that the new Brazilian control has already been used [Page 660] to protect a local industry in the case of window glass, and that this may have been a consideration in its rejection (subsequently rescinded) of an exchange application covering American whiskey. The Embassy has reported previous actions designed to protect the Brazilian glass industry, including the placing of imported glass under distribution control, and the increasing of the duties on glass against which the Embassy has already been instructed to protest.
The Government of the United States has made it clear that its own wartime import control measures are not to be used to protect domestic industries, nor in the case of a given commodity, to discriminate between the countries of origin. In this connection, it may be recalled that the purpose of United States General Imports Order M–63 is to assure the most effective use of available shipping space, under wartime conditions, for imports into the United States, and that the order is amended from time to time to keep pace with the changing situation as it relates to requirements and available shipping facilities. These facts should be made clear to the Brazilian authorities if they again imply that United States import control under Order M–63 is designed to exclude “non-essential” imports for other than reasons of a shortage of shipping.
With respect to the possible use of the new control to prevent dumping, this Government does not object to appropriate use of measures designed for this purpose. Antidumping duties are an accepted practice in many countries. However, it appears that the Brazilian authorities may regard as dumping any unusually large importations, or any condition under which United States products undersell similar Brazilian products in the markets of Brazil. In the view of this Government, and in its generally accepted meaning, the term “dumping” is used to signify sales for export at lower prices than those charged buyers in the domestic market at the same time and under like circumstances. Thus, the selling price of products in markets of the United States, compared with prices quoted for export of the same products to Brazil, rather than a comparison of prices of United States products and similar Brazilian products in the Brazilian market, would be the proper basis for the consideration of a charge of dumping. In any event, however, a general system of control, such as that indicated in the Bank of Brazil’s new measure, clearly could not be justified as an anti-dumping measure.
The measure which has been adopted by the Bank of Brazil appears to be of a type which readily lends itself to rigid and arbitrary restriction of trade; which makes for uncertainty on the part of exporters in this country (and importers in Brazil) as to the treatment which they may expect; and which requires constant vigilance on the part of foreign governments that their trade may not be subjected to discriminatory treatment by Brazil.…[Page 661]
The fact that the Bank of Brazil’s instructions to its branches have not been published, and that it apparently desires that they not be publicized in the United States, can only serve to increase apprehension that the measure may be exercised in an arbitrary and discriminatory fashion and to arouse concern among United States exporters and Brazilian importers. The giving of publicity to such measures is not only important in order that traders may know what treatment to expect, but is a safeguard against arbitrary and discriminatory treatment of trade.
With respect to the ultimate paragraph of the Embassy’s despatch, the Department is of the opinion, on the basis of the information received to date, that no useful purpose would be served by treating the substance of the measure as confidential. On the contrary, the wholesome effects of publicity in connection with such measures would be defeated, and this government would be neglecting its responsibilities to the United States exporters, were it to treat the substance of the measure as confidential.
It may be added that inquiries received by agencies of this Government from American exporters indicate that the latter were informed of the substance, if not the text, of the measure by Brazilian sources in advance of the Department’s receipt of Despatch No. 15534 from the Embassy. It has been noted that the Embassy’s airgram No. A–870 of May 13, 1944,69 transmitting nonconfidential economic news for publication by the Department of Commerce, contains a summary of the control measure.
Very truly yours,
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- Schedule In the Trade Agreement which included articles produced or manufactured in the United States upon which tariff concessions were given when imported into Brazil.↩
- Department of State Conference Series No. 19: Report of the Delegates of the United States of America to the Seventh International Conference of American States, Montevideo, Uruguay, December 3–26, 1933 (Washington, Government Printing Office, 1934), pp. 196–198. For correspondence concerning the Conference, see Foreign Relations, 1933, vol. iv, pp. 1 ff.↩
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