The Chargé in Brazil (Brooks) to the Secretary of State
A–567. Note to FonOff reproduced in Embassy Airgram No. A–561 of July 9, 1947 was sent following receipt of Deptel 718, July 3, which was presumed to have been sent in reply to Embtel 810 of July l.85 This form of presentation was considered preferable to further informal [Page 427] discussions, in view completely unreceptive attitude Exchange Director reported in Embtel 805, June 30.86
It will be noted that Embassy’s note to FonOff did not include reference to Commerce suggestion that Brazilian authorities consider requiring importers to obtain exchange permits prior to placing orders with foreign firms, providing this could be done without conflicting with Trade Agreement provisions. This subject was omitted from note in the thought that the Department and Commerce might care to consider matter further in light considerations mentioned below.
As new controls do not in themselves prohibit importation of, or payment for, any merchandise, their restrictive effect is indirect and fundamentally dependent upon the very uncertainty as regards payment which the American exporter is understandably most anxious to eliminate.
The introduction of prior exchange licensing system would inject further complications into an already confused situation at this end and might easily and logically result in the necessity of setting up an undesirable quota system not involved in current controls. To some extent the “anuéncia previa”, or prior approval, system now in effect and which automatically confers one-time first category status on approved goods, might be regarded by the authorities as a substitute for exchange license.
From Brazil’s point of view the regulations as now constituted are beautifully simple. The fact that any balance of payments’ disequilibrium is absorbed by delays in payment rather than by quantitative limitations on imports, and that exchange authorizations are on a day-to-day or week-to-week basis, renders quotas and exchange budgeting unnecessary. An exchange permit system would represent little advantage to foreign firms unless necessary funds were earmarked and set aside by authorities here when permit is approved. Most of the burden resulting from the imposition of the new regulations is, in effect, now placed on foreign exporters. Prior assurance to Brazilian importers and foreign exporters regarding availability of exchange for any particular transaction, no matter how advantageous to foreign firms, would be in direct contravention of the concepts underlying the current system, and a mere suggestion to that effect would almost certainly be rejected.
Embassy accordingly feels that such a suggestion would constitute, or at least might be interpreted as constituting, a request for a basic recasting of current control system, and that if it is made it should be carefully planned in advance, particularly as regards actual and potential conflicts with international agreements in general and [Page 428] Trade Agreements in particular. Further and detailed instructions on this point will be awaited.