The Consul at Geneva ( Troutman ) to the Secretary of State
765. Fr[om] ITO 150. For Armour.87 Following serious situation has arisen with Brazilians here:
Trade agreement negotiations with Brazil have for some time been practically completed except for pending problem of possible Brazilian action to increase all concession rates agreed to at Geneva by 40% as measure to offset long standing depreciation of cruzeiro. Matter has now come to a head. Brazilians argue their proposed action is no different than that by many other countries in past years. Timing however is most unfortunate and we cannot see possibility of accepting new agreement with Brazil in which all rates of duty against US products covered would be raised while were were offering bindings or reductions. Brazilians feeling they are obtaining little in tariff negotiations here except from US and claiming little to gain from charter say they will be forced to withdraw delegation unless we will approve and support their proposed action. Presumably they would be forced later also to denounce present trade agreement with US to obtain sufficient freedom of action and this has been hinted.
Discounting how much Brazilians may be bluffing, situation still serious. Support by US of their position would doubtless open door to similar requests from various other countries which could come close to wrecking tariff negotiations here, already very difficult.
We have discussed proposed action exhaustively but unsuccessfully with Brazilians in endeavor to find acceptable compromise. We recognize most Brazilian duties are now low and would probably still be moderate even after proposed increase. We also recognize their request is reasonable compared with action by other countries in past years to offset depreciation but after full discussion in delegation and weighing effect on conference here we feel our position subject to decision by Clayton88 when he returns tomorrow must be to refuse to agree to Brazilian proposal.[Page 429]
Brazilians have discussed matter only with US but will bring question before Conference Committee July 29. Please wire urgently Department’s views on possible political consequences with Brazil. [ITO.]