The Acting Secretary of State to the Embassy in Brazil

No. 576

The Acting Secretary of State refers to past correspondence regarding the Brazilian consumption tax law and, in particular, to the Department’s instruction no. 7571 of October 5, 194573 and no. 7941 of April 5, 1946.74 In these two instructions, there was set forth the proposal by this Government to conclude an exchange of notes with the Government of Brazil which would, in effect, grant that Government the right to impose new or increased internal taxes on any imported articles, whether or not such articles are included in Schedule I of the existing trade agreement,75 provided that the Brazilian Government would give assurances that the rates of taxation on imported articles would be made no higher than those imposed on like domestic articles. Reference is also made to the discussion concerning the consumption tax held between an officer of the Embassy and Mr. Eduardo Pereira of the Internal Revenue Office (as recorded in the Embassy’s report no. 38 of January 24, 194774). It is gratifying to note that the views expressed to Mr. Pereira have, in a concise manner, so cogently presented the Department’s position in this matter. The Embassy’s attention is also directed to an instruction which has not yet cleared the Department (with which were enclosed twelve copies of a preliminary list of specific tariff concessions which this Government contemplates requesting from Brazil in the multilateral negotiations at Geneva76) wherein it was stated that the consumption tax matter would be made the subject of a separate instruction.

As the Embassy is fully aware, in spite of numerous representations with respect to the conflict of the consumption tax with the Brazilian trade agreement, and although the offer by this Government referred to above was submitted to the Brazilian Foreign Office by the Embassy almost a year ago, the Brazilian Government has thus far given no indication that it is disposed to take any positive steps to remove the discriminatory features of the tax law. The clear and continuing violation of the existing trade agreement is regarded as [Page 422] a serious matter by this Government and, with all due allowance for necessary delay occasioned by the changing of governments in Brazil, it is felt that steps to resolve this issue might well have been taken some time ago.

At this time, however, of more immediate importance is the matter of the conflict between the Brazilian consumption tax law and the relevant provisions regarding internal taxation which have been approved by all the members of the Preparatory Committee, including Brazil, for incorporation in the Charter of the International Trade Organization.79

In a very short time the Preparatory Committee will hold a second meeting at Geneva to undertake multilateral tariff negotiations and to complete the drafting of the proposed ITO Charter. Article 15, Section 2, as numbered and approved by the recent New York meeting of the Drafting Committee of the Preparatory Committee, the substance of which was previously agreed to at London, reads as follows:

“The products of any Member country imported into any other Member country shall be exempt from internal taxes and other internal charges of any kind higher than those imposed, directly or indirectly, on like products of national origin.”

There was complete agreement that such taxes should not be allowed to circumvent or impair tariff concessions accorded in trade agreements; if this were permitted, such concessions would prove to be valueless. Nor were such taxes considered a proper vehicle for according protection to local industry. Article 15, Section 1, states in substance that internal taxes should not be used to afford protection directly or indirectly for any national product.

This Government finds difficulty in reconciling the position taken on this question by the Brazilian delegation at London, and by the Brazilian representatives on the Drafting Committee at New York, with the actual practice at present by the Brazilian Government in the matter of the application of the consumption tax. It is not anticipated that any member of the Preparatory Committee will request at Geneva that the Charter provisions bearing on this subject be so substantially revised as to nullify the approved principle of national treatment. It is certain that this Government, as well as other Governments, would strongly oppose any attempt to nullify these provisions.

In the light of the foregoing, the Department is of the opinion that the Brazilian Government ought not to postpone further the taking of remedial measures to bring about equality of treatment in the application of the consumption tax. It is deemed of great importance [Page 423] that the Government of Brazil proceed at once to give serious consideration to this problem in order that the Brazilian delegation at Geneva may be prepared to give assurances that measures are being taken by the Government of Brazil to remove all present conflict between the consumption tax law and the Charter provisions relating to this subject.

Unless serious objection is perceived, the Embassy is requested to convey as soon as possible the sense of the foregoing views of the Department to the appropriate Brazilian officials. Since the multilateral trade agreement which, it is hoped, will be successfully negotiated at Geneva will supersede and replace all existing reciprocal trade agreements between the United States and the parties to the multilateral accord, nothing would be gained at this stage by taking this matter up along the lines set forth in instruction no. 7941 of April 5, 1946. Therefore, while reference might be made to the past proposal of this Government to modify the existing trade agreement, the Embassy, in taking the matter up with the Brazilian authorities, should concentrate upon the need for the Brazilian Government to give urgent attention to the problem with a view to taking steps to revise the consumption tax law so that it will be in consonance with the relevant provisions of the ITO Charter, and so that the Brazilian delegation at Geneva may be in a position to give definite assurances in this regard.

  1. Foreign Relations, 1945, vol. ix, p. 723.
  2. Not printed.
  3. Signed February 2, 1935, Department of State Executive Agreement Series No. 82.
  4. Not printed.
  5. For documentation on the Geneva negotiations, see volume i .
  6. Department of State, Treaties and Other International Acts Series No. 1700.