The Chargé in Brazil ( Donnelly ) to the Secretary of State

No. 19088

Sir: I have the honor to attach copy of a memorandum prepared by a member of the Embassy staff concerning the possible issuance of a decree controlling imports into Brazil.

I immediately called this matter to the attention of the Minister of Finance who said the decree had not been signed and that he would discuss it fully with me next week (when he returns from São Paulo). I pointed out to the Minister that the new measure would conflict with the Brazilian-American trade agreement.

Respectfully yours,

Walter J. Donnelly

Memorandum by the Senior Economic Analyst of the Embassy Staff ( Davidson ) to the Assistant Commercial Attaché ( Childs )

Subject: Proposed Decree Controlling Imports into Brazil.

Beyond the information I gave you yesterday concerning the subject decree, I have learned today that this proposition has been approved by President Vargas, was passed back to the Ministry of Fazenda, and has now been returned to the Carteira in order that definite lists of those commodities to be controlled can be drawn up [Page 668] It is understood that the Carteira intends to include in this list everything appearing under Schedule B and some additional non-specified items. As I suggested yesterday, the probable import of such a plan lies in the complete control over all goods to be imported into Brazil (as this decree, if passed, would necessitate the obtention of permission to place an order in a foreign country rather than the present partial control, where exchange can only effectively be refused on applications for exchange against letters of credit) and the resulting possibility of discrimination is quite evident.

It was further learned that Sarmanho is planning to return to Brazil in the very near future with his plan for the freezing of Brazil’s present dollar credit balances further perfected and with full intention of forcing the issue through if possible. Sarmanho’s plan, as I understand it, entails the reservation of all present dollar credits for the purchase of certain capital goods which will be essential in the furtherance of Brazil’s plans for industrialization. It is understood that normal import business would have free access to all exchange resulting from export negotiations subsequent to the effective date of freezing present credits.

I am told that Souza Costa is not in favor of the above plan put forward by Sarmanho.