The Ambassador in Brazil ( Pawley ) to the Secretary of State
1124. Within past few days I have discussed with President Dutra desirability completing negotiations proposed treaty of commerce, navigation and friendship between Brazil and the United States with idea having treaty ready for signature at time of President Truman’s visit to Brazil.95 President Dutra has indicated his full agreement with this plan and is issuing a directive to the Brazilian Foreign Office for immediate initiative negotiations.
The Brazilian Government has requested that treaty be enlarged by the addition of a short chapter on economic development and investment. The Embassy has consequently drafted such a chapter which is being submitted to the Brazilians as a basis for discussion and negotiation. The text of this proposed chapter follows:
“The two high contracting parties recognize that the development and maintenance of a broad industrial and economic foundation is dependent upon, among other things, the availability, under fair and equitable terms and conditions, of capital funds, raw or processed materials, machinery and equipment, technology, trained personnel, and managerial skill. Both parties agree that no unreasonable impediments will be imposed by one against the other which might prejudice or prevent the development and maintenance of a wide and varied foundation of industrial and economic activity, and both parties undertake to extend to each other full cooperation and assistance towards this end. It is further recognized that the attainment of such industrial and economic development can be greatly facilitated by the free flow of capital funds for investment, that such capital should be available upon reasonable terms and conditions, and that it should be invested for productive purposes economically suited to the area for which it is intended and in a manner consistent with the best interests of both the supplying and recipient countries.
“The contracting powers agree not to take any unreasonable actions which might prove to be directly or indirectly injurious to the interests of the other or to its nationals and legal entities. Not by way of limitation the following special circumstances are provided for:
- “(1). In all cases when one party may find it necessary to default on the service of a debt obligation to the other party, or the latter’s nationals, prompt negotiations shall be undertaken with a view to arriving at an adjustment which will be fair and nondiscriminatory.
- “(2). Each contracting party, its nationals and its legal entities, shall enjoy full and complete most-favored-nation treatment [Page 434] as regards the investment of capital. It is understood that this treatment is to apply to investments which have been made in the past, as well as to those which may be made in the future.
- “(3). Neither contracting party shall establish any restrictions on the transfer of funds for the payment of interest, dividends, and a moderate amount for the amortization of loans or for depreciation of direct investments, except as may be mutually agreed upon after consultation and which are permitted, under the articles of agreement of the International Monetary Fund.
“It is recognized that there are numerous mutual advantages to be derived from joint undertakings involving capital and management from the territories of both contracting parties. Accordingly it is agreed that the opportunities for the voluntary participation in joint undertakings of such capital and management shall be free and unrestricted. It is further recognized that laws or regulations which compel the participation of domestic capital and management in an enterprise may reduce the amount of foreign capital available, and may impede economic development, and it is agreed that neither of the contracting parties shall adopt laws or regulations compelling such participation except in those special fields where fundamental national security may be concerned.”
Department will note in foregoing draft that an effort has been made to follow proposed revision of chapter 4 of the ITO charter as approved on May 27, 1947 by Executive Commission on Economic Foreign Policy. Expropriation clause has been deleted as draft treaty appears to adequately cover this point article V, paragraph 2. The inclusion of this new chapter also presumes changes in the draft treaty article XVII paragraph 3. Conversations with Brazilian Govt are expected to begin immediately and Dept’s recommendations and suggestions, regarding the draft incorporated in this telegram, are urgently requested.
- See White House press release of August 6, 1947, Department of State Bulletin, August 17, 1947, p. 341.↩