811.20 Defense (M) Argentina/3–2746
Memorandum of Conversation, by the Acting Chief of the Division of Brazilian Affairs (Braddock)
Mr. García11 called on me this morning at the request of his Ambassador to discuss further the subject of our memorandum reply of March 26 concerning the possibility of getting wheat from Argentina for Brazil in return for rubber to be supplied Argentina.
[Page 121]I explained to Mr. García that we thought that our proposal would result in getting for Brazil the wheat she needed and that as we were waiting for an answer on this proposal, it seemed preferable not to take up directly the Brazilian proposal in order not to confuse the issue.
With regard to the Brazilian proposal, I went on to say that if the question had simply been one involving Brazil, the United States and Argentina, there would have been no question at all but that the United States would have readily assented to Brazil’s suggestion, but that unfortunately this question could not be dissociated from the whole problem of rubber supply and distribution. Taking up the thread of the discussion that had begun the day before in Mr. Braden’s office with the Ambassador, I explained to Mr. García why it would be difficult, under actual circumstances, for the United States to agree to the Brazilian proposal. I stated that if Brazil were to be free to sell its rubber to Argentina, it would be exceedingly difficult for the United States to restrain the Far Eastern producers from doing likewise and that in the interest of maintaining the Far Eastern price at a reasonable level we were anxious that the South American consuming countries not enter the world rubber market as our competitors. A very few cents increase in the price of Far Eastern rubber would mean a heavy expense to this country.
I went on to argue that it would be of no economic benefit to Brazil if she were to provide this rubber to Argentina instead of the United States since (1) if Argentina chose to put the transaction on a strictly value-for-value trading basis, Brazil could not possibly find enough rubber to sell Argentina in return for the wheat she needed; (2) Brazil could hardly hope to establish a permanent market in the Argentine for its rubber unless a way were found to cut the Brazilian cost of production approximately in half to meet the cost of the Far Eastern producer; and (3) under Brazil’s agreement with United States, she was assured of being able to sell all of her exportable surplus until June 30, 1947 to this country at a price far higher than she could hope to obtain elsewhere.
Mr. García stated that he understood this reasoning and considered that the proposal we had made should solve in a satisfactory manner the wheat crisis. He admitted that he saw no special advantage to Brazil in making the rubber shipments herself. He said that he felt that there might be some advantage if the rubber the United States was to supply to Argentina under the proposal came from the stocks which the Rubber Development Corporation was holding in Brazil since this would perhaps improve Brazil’s trading position in submitting the proposal to the Argentine Government as a means of getting wheat. He mentioned that it was not clear from our memorandum [Page 122] where the rubber which the United States would sell to Argentina under the CRC allocation would come from, and I offered to make inquiry on this point and let him know.
Mr. García then asked whether the wheat that Brazil might be able to obtain under this proposal would be charged against its allocation by the Combined Food Board and I stated that undoubtedly it would be so charged. He asked whether the United States would ship wheat in case Argentina would not or could not fill its part of the CFB allocation to Brazil and I replied that it was my understanding that if this should happen the CFB would take steps to transfer the unfilled part of the allocation to another source which might well be the United States.
I pointed out to Mr. García the veto power which Brazil had over the present proposal by virtue of the Tripartite Agreement which obligated United States to consult Brazil regarding shipments of rubber and tires to the Argentine (this point had already been brought up in the meeting with Mr. Braden) and called his attention to the fact that Brazil was free, if it wished, to make as a condition of its joining the United States on this proposal that specific quantities of wheat be shipped to Brazil by Argentina.
Mr. García stated that he had been surprised to read in the Ambassador’s aide-mémoire12 on this question the statement that the wheat problem “as the American Government itself has indicated, cannot be solved with the United States and it will be necessary to have recourse to Argentina”, and he asked if any such indication had in fact been given by the United States. I answered that to my knowledge there had been no such indication at all and that the United States continued ready to give every assistance it could toward working out the difficult wheat problem.
Mr. García finally brought up the matter of flour licenses and wanted to know whether any measures had been taken to permit the resumption of flour shipments to Brazil. I informed him that I had received information that the Department of Agriculture had agreed to the licensing of 15,000 tons of flour to Brazil but that I was not yet sure to what period this quantity applied. He stated that it would help materially if this information could be transmitted to his Government and requested me to find out if possible the period affected and to let him know.