The Secretary of State to the Ambassador in Brazil (Berle)
2599. Reurdes 2977, Sept. 28 and 3229, Oct 18.59 Harden, Standard Oil, New Jersey, and Nave, Atlantic Refining, have called at Dept to express serious concern re project currently under consideration by Braz Govt whereby authorizations would be granted to Brazilian companies for construction and operation of two refineries. Under existing decree-legislation (Decree-Law 395 of April 29, 1938, and Decree 4071 of May 12, 1939) foreigners are excluded from direction, management or investment in refineries.
It appears that Braz Govt contemplates some arrangement between refineries and American and other foreign concerns now marketing petroleum products in Brazil, whereby latter would supply crude oil to refineries and then market refined products. Dept feels probable result of such arrangement would be to freeze foreign participation in marketing business at existing levels and among existing suppliers and distributors, and perhaps ultimately to squeeze it out entirely and bring about Brazilian monopoly of marketing as well as refining [Page 524]business. Moreover, an agreement between US and other foreign companies and Brazilian refineries to share the market under some sort of exclusive quota arrangement would not only be objectionable from commercial policy standpoint but might be inconsistent with US anti-trust legislation.
In light of very recent conversations here, some company representatives are believed to have somewhat altered their original limited and from various standpoints not satisfactory objective of seeking merely minority interest in refining companies.
In order to further liberal commercial policies of mutual advantage to Brazil and US, and best to protect American interests involved, Dept desires that Emb, unless it perceives serious objection, consult with local representatives of American companies involved, and take following lines in conversations with Brazilian authorities.
Main emphasis should be directed toward elimination of basic cause of present difficulties, i.e., provisions of the decree legislation which restrict ownership and management. Meanwhile, however, Emb should seek postponement of action to give effect to recommendations of National Petroleum Council for establishment of two Brazilian refineries. Were these recommendations adopted, it would make more difficult elimination of nationalistic decrees.
In pressing for elimination of refining restrictions, argument can be used that according national treatment to foreign capital in refining would help establish confidence among potential foreign investors regarding sincerity of frequent statements that Brazil desires foreign capital to aid development. Principles of national treatment, and of assurance of equitable treatment for foreign enterprises were subscribed to by Brazil in Kesolution LI (6) of Mexico City Conference.60
Moreover, Brazil, at present development, would appear major beneficiary of foreign capital and enterprise. Hence, if it desires to receive benefits of these essentials it should be guided by these principles.
Emb might also note Brazil has received substantial public loans from US which have been made despite increased nationalism evidenced by numerous restrictions on foreigners. However, this Govt in future will probably examine more closely commercial policies of borrowers, as witness current British talks.[Page 525]
Dept hopes in Brazil’s interest nationalistic trend will be reversed. Therefore, it feels this an opportune time to press firmly present case.
Please inform Dept of developments.