560.AL/2–548: Telegram
The Secretary of State to the Embassy in Brazil
105. 1. US Del at ITO Conference Habana encountering difficulties with Brazilian Del re subsidy provisions ITO Charter. Brazilians proposing provisions which would prevent a country from using export subsidy if ITO should find that trade of country using export subsidy would not be seriously prejudiced if it were not permitted to use such subsidy.
2. This provision not acceptable to US. There is no prospect of US Congress accepting Charter which would subject to ITO approval, as Brazilian proposal in effect does, right US to use export subsidies. Member Brazilian Del advised US Del confidentially he would agree dropping their proposal but states difficulty is in Rio, which is unmoved by view its Del Habana, and suggests we take matter up in Rio.
3. Subsidy provisions now being considered Habana more favorable to Brazil than subsidy provisions in Geneva Draft ITO Charter. Under provisions being considered Habana Art 28 Geneva Draft has been broadened so as to limit all types subsidies affecting exports, not merely subsidies directly on exports. Present redraft Art 28, designed in part to meet Brazilian points, would prevent any subsidy from being used to acquire more than equitable share of market. Geneva draft would leave loophole under Art 26, para 2 for US use processing taxes to, in effect, subsidize exports, and such subsidization would not in any way be limited. Redraft proposed Habana therefore definitely more desirable from Brazilian viewpoint because it would limit use of processing-tax subsidies in same way as straight export subsidies.
4. If Emb perceives no objection, request you discuss this matter informally along foregoing lines with appropriate officials Brazilian govt with view persuading latter to instruct its Del at Habana to drop its provision described in para 1 above. Dept appreciates Brazilian sensitivity re use US cotton export subsidy in past and that raising issue subsidy provisions Charter may only irritate Brazilians without securing any change in their position. Dept leaves Emb’s discretion whether raising Habana question is appropriate and likely yield fruitful results. Since question now under discussion at Habana, essential any action taken be prompt as possible. Pls report Dept and repeat reply to Habana.