The Chargé in Brazil (Donnelly) to the Secretary of State
[Received December 30—6:08 a.m.]
4574. Embassy’s 4520, December 23, 3 p.m., and 4418, December 12, 6 p.m.76 Souza Costa showed me today the import control measure [Page 671] and told me that he was being urged to put it into effect early in January. He said that it would take the form of a portaria (Departmental order); that it had been approved by all Cabinet Ministers; that President Vargas strongly favored it; and that it would be administered by the Carteira de Exportação e Importação of the Bank of Brazil. He remarked that pressure on him from government officials and industrial groups to make it effective at once was very strong and while at my request he had frequently postponed it the situation now was such that he had to act.
The list includes all iron and steel products, machinery, electrical products, chemical and pharmaceutical products and miscellaneous items. The measure provides for the issuance of import permits by the Bank of Brazil and authentication by Brazilian Consuls abroad.
I raised very strong objections to the measure and employed every argument at my disposal including the violation of the trade agreement (Souza Costa countered that since it would be a provisional and war measure, it would not conflict with the trade agreement; I strongly combatted this statement); the fact that it is contrary to the conclusions reached at the Bretton Woods Conference77 which Souza Costa attended; the resultant increase in the cost of living in Brazil; the tremendous increase in bureaucracy and volume of paper work at a time when the United States is removing controls over exports as evidenced by the sharp roll back in the decentralization procedure; the adverse effect of the measure in the United States; the fact that economic subjects including trade controls would be discussed at the forthcoming conference of the Foreign Ministers; the delays in the importation of merchandise from the United States, et cetera, et cetera.
Souza Costa was impressed with the arguments and said that while he agreed with them it was very difficult for him to delay putting the measure into effect. I advanced other arguments and finally Souza Costa agreed to hold off a while longer.
Although Souza Costa made no reference to the cotton subsidy and our recent decision not to increase coffee price ceilings,78 he is a shrewd trader and may attempt to use this measure for bargaining purposes. However, the powerful industrial and banking groups in Brazil are behind the measure. They are determined to maintain the gains they have made as a result of the war and fear the dumping of American merchandise in Brazil.