The Counselor of Embassy for Economic Affairs (Brooks) to the Secretary of State

No. 425

The Embassy has the honor to refer to the Department’s Instruction no. 97 of July 2590 concerning an amendment to the proposed Constitution referred to in the Embassy’s despatch no. 16 of June 17.90

[Page 549]

After due consideration of this amendment and many other amendments, the Constitutional Commission on August 1 adopted a revised wording of Article 164 paragraph 9–1, under a new heading entitled “Social and Economic Order” composed of seventeen articles. Article 8 thereof reads:

“The exploitation of mineral resources as well as the hydraulic energy depends on Federal authorization or concession under the terms of the law.”

Section 1 of Article 8 reads:

“Authorizations or concessions shall be granted exclusively to Brazilian physical or juridical persons, granting to the owner of the land indemnity for damage or for the occupation of his land.”

The chief officers of the American oil companies operating in Brazil* have discussed the revised wording with their legal advisors here and generally are of the following opinion:

They hoped that the paragraph would be so worded as to confer on “foreigners” equal rights with Brazilians, by using the word “foreigners”. Such a wording would eliminate from a petroleum law the necessity of any definition of the rights of foreigners.
The paragraph as now worded makes it necessary for a petroleum law to define the rights of foreigners, and makes any “juridical person” subject to that law or any other law which may be in force and applicable.
Concessions granted to “juridical persons” composed of foreigners, so long as the “juridical person” complies with the terms of the law could not be cancelled on grounds of constitutionality.

The oil company executives feel that under the revised wording of the Constitution their willingness to expend large sums of money in exploration work now depends on the wording of a petroleum law and other pertinent laws such as taxation laws.

Even with the adoption of the constitutional provision referred to herein, the foreign oil companies will not be able to proceed with any exploration work until a petroleum law is passed, which will define the rights of foreign capital and the terms and conditions under which concessions will be granted. It will also be necessary for Standard Oil Company, Texas Oil Company, and Atlantic Oil Company to form Brazilian Corporations before they can be granted concessions. The Gulf Oil Company operating as Corrêa e Castro, is a Brazilian Corporation for marketing operations. Gulf probably would form a Brazilian Corporation for exploration and development work if it wishes to enter that field. This may require several months. Nor can foreign capital participate in the refining industry until a petroleum law is passed or until the President cancels the Decree denying [Page 550]foreign capital the right to participate in the refining industry. It is rumored that the President has been asked to cancel the Decree, but his disposition in this matter is not known.

It is generally believed that the wording of Article 8–1 of “Social and Economic Order” is in final form and in this form will be adopted by the Assembly. An effort is being made by the Constitutional Commission to complete its work soon in the hope the Assembly will adopt the new Constitution on September 7.

C. C. B[rooks]
  1. Not printed.
  2. Not printed.
  3. Gulf Oil Company, Standard Oil Company, Texas Oil Company, Atlantic Oil Company. [Footnote in the original.]