832.6363/12–245: Telegram

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

3672. Embassy is appreciative of Deptel 2748, December 11. Unfortunately the instruction seems to be both highly dangerous and highly unsound and in that feeling Economic Counselor’s Office agrees. We further feel that immediate animosities and inevitable publicity engendered, with accompanying change that American diplomacy is being used at behest of group. Companies which have not competed and have openly opposed refining industry here, would be gravely prejudicial.

Instruction is in effect a request from US Govt to Brazilian Govt that it shall not, under its existing law, permit building a refining industry unless and until legislation which we consider satisfactory under economic charter shall have been passed.

I have every reason to believe that British Embassy will not take parallel action unless it can state that it does so at instance of US Govt. We shall be held responsible.

If representation is successful as it probably will not be, we should block the one real chance Brazil has had in many years to create competitive refining industry in substantial partnership with American companies. I have no faith in theory that successful representation would merely delay, because I am very clear that Jersey Standard group will use every influence as long as they can to continue impasse, and so go on in control of refined market. They certainly have powerful financial reasons to do so, and this is only conclusion I can draw from their statement both here and to Dept. that they will enter refining business only as last resort despite recognition that it is ultimately inevitable. My surmise is that the immediate result of representation when made will be instant declaration by Brazilian Govt that they consider refining of industry affected with a public interest under Economic Charter, closing the door to free capital movement in this industry for some time to come, and killing the very [Page 538]promising attempt which Petroleum Council is now making towards liberalization. Since I expect to be in Washington by Tuesday of next week, there will be time for discussion which I hope may prevent Dept. from making very grave mistake. In honesty I should add that I personally would not wish my name to appear in connection with the proposed representation and cannot make it with the sincerity which alone might make it successful. Dept can of course make this representation through Ambassador Martins, preferably await my visit to Washington, thereafter cabling appropriately to Embassy here.

Berle