832.6363/11–2745: Telegram

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

2693. Dept is pleased to observe from urtel 3523 Nov 2769 that the granting of refining concessions is not an automatic consequence of [Page 534]the closing of bids Nov 30 and that the National Petroleum Council is disposed to recommend to the new government an amendment of existing laws and decrees so as to permit the participation of foreign capital in refining and exploration activities. This indicated liberalization of concept is viewed by the Dept as being a most heartening step toward elimination of many of the problems facing foreign petroleum interests.

Dept understands the desire of the Brazilian Government to promote the establishment of a refining industry, particularly in view of the beneficial effect which it could have upon Brazil’s foreign exchange position. Dept feels, however, that any such action under existing laws would be inconsistent with the principle accepted by Brazil under Article VI of the Economic Charter of the Americas, would eventually prove detrimental to present or contemplated foreign petroleum investments and might react disadvantageously upon the future expansion of the Brazilian economy.

Under Article VI of the Economic Charter of the Americas adopted at Mexico City the Brazilian Government accepted the principle that “The American Republics will undertake to afford ample facilities for the free movement and investment of capital, giving equal treatment to national and foreign capital, except when the investment of the latter would be contrary to the fundamental principle of public interest.” It is the Dept’s opinion that the present restrictive petroleum legislation can justifiably be interpreted as being inconsistent with this accepted principle.

I suggest, therefore, that you continue to encourage the National Petroleum Council in its expressed willingness to further liberalization of present laws and that every effort be made to convince them that, until modification of these laws may be considered by the new government, a postponement of a decision on refining concessions is essential in order to avoid giving force, effect, and precedent to laws which, it is contemplated, will be revised.

In pursuing this course, it is highly desirable that no impression be left with the Brazilian Government that this Government would view with favor the establishment of any fixed percentages of participation, minority, or otherwise. As you no doubt realize, our acceptance of such a principle would inevitably encourage the adoption of furtherance in other countries of restrictive policies harmful to American commercial interests. Accordingly, every effort should be made, in the encouragement of modification or abrogation of present restrictive measures, to press for the elimination of any limitations on participation.

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Time being of the essence in this situation, I am sure that you will agree that we should take steps in furtherance of these ends at the earliest possible moment.

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