832.011/10–846

The Chargé in Brazil (Daniels) to the Secretary of State

[Extract]
restricted
No. 845

The Chargé d’Affaires ad interim has the honor to refer to the Embassy’s telegram No 1629 dated September 19, 194691 advising of the promulgation of the new Brazilian Constitution, and to submit hereunder comments regarding certain provisions of the new Constitution as of possible interest and assistance to the Department. Comments regarding other provisions of the Constitution are in the process of preparation and will be forwarded as soon as possible. The submission of this information has been delayed by a shortage of personnel in the sections of the Embassy responsible for the reporting thereof.

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Petroleum.

Article 153 of the Constitution provides that the exploration and exploitation of the mineral resources shall depend upon federal authorizations or concessions as provided by law. Under the provisions of Section 3 of Article 153 it is contemplated that at some time in the future the States, rather than the Federal Government, may exercise the right of granting concessions and supervising them. It is not considered probable that this will be done in the near future and it is possible that it may never be done.

It will not be practical for foreign oil companies to operate under the provisions of Article 153 until such time as a petroleum law is enacted by the Assembly, nor will it be possible for foreign capital to participate in the ownership of refineries until certain Presidential [Page 551]decrees which are in conflict with the Constitution, forbidding foreign participation, are canceled either by action of the Assembly, or by action of the Courts.

All the oil company representatives in Rio are fairly well satisfied with the provisions of the new Constitution as they pertain to petroleum. They all feel that the door is now open to foreign capital under such conditions as may be established by a new petroleum law.

Mining.

This Constitution differs from the former one in that it grants authorizations or concessions “for mines and subsoil riches” to companies organized in Brazil. The phrase “ou a empresas organizadas no país” is generally interpreted to mean that non-Brazilians may organize a company under Brazilian law; that company may then acquire mining rights under the procedure specified in the Code of Mines. The Code of Mines must be revised to conform to the new Constitution.

Brazilians in policy-making positions in their government have stated that it was their hope in drafting this measure that Brazilians would be offered participation in such companies, and that under the cited provision of the Constitution, there was no requirement to do so, and in any case the management and control could be in the hands of non-Brazilians.

It is understood that under Brazilian corporate law, the directors of a Brazilian company must be residents in Brazil.

The policy of granting the owner of the surface preference to the mineral rights is new and is believed to be the result of a compromise. The land-owners wanted to retain the preferential right to the subsoil but the non-land-owning element and particularly the members of the Conselho de Minas e Metalurgia (and the Conselho de Petróleo) only wished to allow indemnization to the owner of the surface for any damages caused as a result of prospecting development or working.

As a practical solution, the owner of the mineral rights would be well advised to purchase the surface rights to avoid expense and trouble in the interpretation of this feature—(Article 153, final sentence of paragraph 1).

It is the Embassy’s opinion that this Constitution gives an opportunity to foreign capital to participate in mining in Brazil for the first time in ten years; much depends upon the interpretation of the law in its application to non Brazilians.

The above comments result from a compilation of materials submitted by the responsible officers of the various sections of the Embassy concerned.

  1. Not printed.