The Ambassador in Brazil (Pawley) to the Secretary of State
[Received December 21—1:40 a.m.]
2029. Since first arriving in Brazil have endeavored through conversations with President, Cabinet members, principal Senators, Representatives, to obtain preparation groundwork for petroleum law which would be acceptable to American companies. During argument of new constitution it was necessary at one point to use Embassy interest to avoid damage of petroleum development by anti-foreign element. President appointed National Petroleum Council which has been delegated responsibility drafting legislation to cover exploration, development and refining.
National Security Council, which includes members Cabinet, military and civil officials, plus President, charged with responsibility of preparing statement of general principles for guidance National Petroleum Council.
Prior my departure for Washington September 1, I discussed this subject with President Dutra, advising him Peruvian Government had employed firm of Herbert Hoover Junior to assist in writing Peru’s new petroleum law and if Brazil sincerely interested in participation by American companies in petroleum development law should be one generally acceptable to American industry. At that time I furnished Dutra with Portuguese translation of Peruvian proposed law.
Upon returning December 11 I learned no substantial progress made in 3 months and during visit to President I referred to growth within Brazil of anti-foreign propaganda which had reached sufficient proportions to greatly endanger participation American capital and technicians in development some of Brazil’s principally desired industries. I mentioned specifically petroleum. President stated that Communists and Vargas95 were mainly responsible. I asked President not to overlook small groups of selfish national interests who would strongly pressure Government and if successful retard Brazil’s progress for many years.
Following day ex-Foreign Minister Aranha visited Embassy and during 2-hour discussion in which he showed great interest in obtaining American Government, industry and technical assistance for Brazil, I again mentioned this danger. Following day he brought to Embassy General Barreto,96 principal member Petroleum Council, [Page 556]who gave me shocking explanation of methods by which he proposed this petroleum development to be handled and which would unquestionably delay progress for years. In this conversation in presence Aranha I attempted to show great and logical development of petroleum industry in United States because of liberal laws equal opportunity for all. Pointed to immense investment of Shell Co. in United States refineries, roads, filling stations, development automotive industry because of farsighted planning of United States legislation. Told General Barreto Brazil apparently dealing in this matter as if it involved pennies whereas it required capital of hundreds of millions and unlimited technical skills not available here in sufficient quantities.
Aranha telephoned me later to report that Barreto had arranged for interview with President for purpose immediately proceeding with drafting of law satisfactory to American petroleum industry and further suggested that if it were possible for United States Government to enter into discussion with Brazilian Government officially, or formally sponsoring American companies, he felt a much quicker and more satisfactory solution could be obtained. He said Brazilian Government would find it easier and less embarrassing to discuss details of proposed legislation with American Government, than with the individual oil companies as interested parties. I advised Aranha this not usual procedure. I was not certain American companies would approve such procedure but would consult Department and industry immediately.
Embassy enjoys excellent relations with all people connected with Petroleum Council and we feel in excellent position to make available information to them which might be useful to Drafting Committee. It is suggested that Department arrange early meeting with heads of American petroleum industry in United States in hopes of obtaining from them unanimous agreement regarding provisions of legislation best fitted to meet Brazilian requirements and at same time equitable to American and other foreign interests.
I met today with heads of American Petroleum Industry located here and discussed this matter fully. All agreed that this proposal should be submitted to Washington and that agreement among companies on proposed legislation would be desirable and could be reached best through such meeting in Washington.
Pending ascertaining whether American companies can reach agreement on terms proposed by Brazilian legislation it seems desirable to avoid discussing matter with Shell Oil Co. Later on if satisfactory program is agreed it would obviously be desirable to coordinate fully [Page 557]with Shell to further enhance prospects of obtaining equitable legislation.
An important point to consider in connection with active Embassy participation in or sponsorship of discussions with Brazilian authorities of terms proposed legislation is growing concern among American oil and other interests here at manifestations of anti-foreign capital sentiment. Some have expressed view that Embassy might be more effective in overcoming such resistance than companies acting independently.
Does the Department feel it advisable that Embassy suggest to Brazilian Government desirability employment of American firm to assist in preparing legislation? To what extent does Department concur in Aranha’s views with reference to American Government sponsoring American companies and assisting in preparation this legislation?