The Secretary of State to the Chargé in Brazil (Daniels)
489. The prolonged and thus far fruitless discussions with respect wheat for Brazil and rubber for Argentina are causing growing feeling of irritation between all three countries. Moreover an irresistible [Page 130] pressure is mounting against US Govt on part of members of Combined Rubber Committee and recipient countries for rubber allocations to permit the Committee to proceed in making its allocations effective. US Govt which is most desirous of seeing that Brazil’s needs for wheat and Argentina’s for rubber are met is unwilling longer to accept criticism for situation which it did not create and for which it does not feel responsible. It could not in any case hold back execution of rubber allocations for more than a few days longer. CRC will meet again on Apr 18 at which time it is fully expected that unless situation has been otherwise resolved Great Britain and Netherlands will take matters into their own hands and reassign the Argentine allocations so as to nullify any restraining effect of Tripartite Agreement.
Brazilian Govt has been informed why none of its proposals to US could be fully accepted. US has no authority to change either size or source of any allocations of CRC nor modify the conditions established by CRC for use of the rubber allocated. The decisions taken by CRC in this regard envisage fair and equal treatment for all and US Govt is in accord with them. If solution of Brazil’s problem were as simple as our merely releasing to Brazil for disposal by her a part of the rubber pledged to US under purchase agreement of Mar 3, 1942,21 US would gladly have done so. Unfortunately situation is far more complex and involves whole fabric of rubber allocation system which US views as essential at this time.
If it will contribute to successful bilateral negotiation between Brazil and Argentina and negotiation can be brought to final conclusion by Apr 17, US would agree to letting Brazil use first and second quarter allocations as quid pro quo with Argentina on condition that 60 cents per pound first quarter and approximately 22½ cents second quarter (exact figure to be cost of Far Eastern rubber landed in Argentina on basis of 22½ cents New York) would be observed by Brazil. A bookkeeping transaction through Rubber Development Corp would be necessary so that technically US would appear as filler of allocation but actual filler for purpose of bilateral negotiation would be Brazil. RDC would buy from Brazil at regular agreement price of 60 cents. Loss on resale of second quarter allocation would thus be borne by US not Brazil. A point that might be used to advantage by Brazil in this negotiation would be the following. Second quarter allocations have been estimated but not finally determined by CRC. Brazil would endeavor to get for Argentina largest second quarter [Page 131] allocation possible. (Probable figure on basis of present information would be 1250 tons; however allocations are based on current industrial capacity using ratio of 50 percent natural 50 percent synthetic, and somewhat higher allocation could be requested if need conclusively established).
Only alternative to foregoing suggestion in view of Dept would be frank tripartite discussion with Argentina, which could probably be best carried out at Rio. Your views on locale are requested. US approach in this discussion would be along following line: Continued shortage of many commodities including both rubber and wheat makes necessary international allocation of these products to assure equitable distribution world supplies. Under allocations fixed by Combined Rubber Committee adequate provision has been made for immediate and growing needs of Argentine industry, amounting to 578 tons crude rubber first quarter, about 1250 tons second quarter; moreover beginning second quarter Argentina would receive benefit of world price for Far Eastern rubber, being approximately 22½ cents per pound for second quarter. Brazil’s need for wheat is no less compelling than Argentina’s for rubber and Brazil’s wheat allocation for first and second quarter of 1946 has been tentatively fixed by Wheat Subcommittee of Combined Food Board at 400,000 tons. Argentina as traditional supplier of Brazilian wheat is named as source for most of the allocation. It is to interest of all countries that allocations worked out fairly for good of all be respected and implemented by countries directly involved. US as source for rubber allocations to Argentina intends fully to discharge its responsibility and see that Argentina’s allocations are met. We in turn are confident that Argentina will promptly and faithfully fill wheat allocations to Brazil and other countries for which it may be indicated as source by Combined Food Board. Failure in execution of allocation program for one commodity would inevitably cause loss of respect for and tend to break down operation of allocations of all other commodities. Without our directly linking the wheat and rubber allocations, the inference should not be lost on Argentina that to continue to benefit under the rubber allocation she would have to perform under the wheat allocation.
At an opportune point in aforementioned discussion US representative should suggest that Tripartite Agreement be terminated by mutual consent as no longer in harmony with situation.
See Gracie at once on foregoing suggestion and report promptly reaction of Brazilian Govt.
Repeated to Embassy Buenos Aires.