Memorandum by Mr. I. G. Harmon, Petroleum Division, to the Chief of That Division ( Eakens )
In conformity with your request, I am submitting herein my comments on the present status of a petroleum law for Brazil.
I have read the monthly and annual reports1 prepared by Mr. Anderson, Second Secretary of the Embassy in Rio de Janeiro. Very little of definite nature pertaining to the subject has occurred since my departure from Brazil on November 15, 1947, and Mr. Anderson’s: reports seem to cover the subject of petroleum quite fully. So far as I can determine, in only one instance has the Embassy in Rio taken any official action with reference to a petroleum law, and in that instance certain changes were suggested which it was hoped might make the law acceptable to American oil companies, if adopted.
The law drafted by the Odilon Braga Committee was finally submitted to Congress by President Dutra. The law has been in Committee for several months with little chance that the present Congress will take any action on it.
Controversy with reference to the law exists throughout Brazil. Certain interests wish to make the petroleum industry in Brazil a government monopoly, other interests wish to open it to private capital with Brazilian capital in control, yet permitting foreign capital to participate with a minority interest, and a few people openly advocate opening up the country to foreign capital, with certain safeguards. So far advocates of the last course are greatly in the minority.
It is well known that the spirit of nationalism is very strong in Brazil. It was fostered by Vargas throughout his regime as President. The Army is steeped in nationalism. A few top generals control the destiny of the country; not only in petroleum, but in practically all matters.… The industrialists do not want United States capital to dominate and control petroleum development or refining in Brazil, knowing that American capital once it comes into the Country on a large scale will raise wages and living standards, and so force the Brazilian industry to meet the standards created by American capital.[Page 363]
The Communists created and led the attack against American capital in the development of Brazil. Through an extremely able and clever use of the press and by influencing the young people in schools and colleges they have made the opposition to foreign capital appear to be of a spontaneous origin, rather than of Communistic origin. They developed the slogan “Brazilian oil for Brazilians” which appears all over Brazil in the press and on posters.
The persons both in the Army and in Government who control the destiny of the country are not ignorant of the facts regarding petroleum. The solution of the problem does not lie in further education on the matter, and patriotism or interest in the welfare of their country is not a governing factor in the matter. In my opinion the attitude of the controlling generals and the most influential members of the Government and Congress is based on self-interest rather than national interest.
I see very little chance of the enactment of a petroleum law which will be acceptable to foreign capital based on sound economics or national welfare.
Brazil needs financial help from the United States for some very sound and worthy purposes. They want money for some other purposes not so sound or worthy, but which appeal to their national pride.
The United States needs certain products produced in Brazil which will be of extreme importance in the event of another war. I refer to the development of petroleum in Brazil and to the development of the vast iron ore deposits. I also refer to monazite sands, needed in the atom bomb program, to industrial diamonds, quartz crystal, vegetable oils, etc.
The only hope I see of a satisfactory petroleum law in the near future is to negotiate a trade with Brazil in which we help Brazil in the projects she needs and wants and Brazil in turn enacts a satisfactory petroleum law and agrees to the development of their iron ore, and other needed products under terms and conditions satisfactory to the United States.
It is my belief that a trade, fair and reasonable to both countries, can be worked out and I further think that with the proper approach, the plan would not in the least degree offend Brazil. It is just as right and as practical for two countries to make such a trade as it is for two individuals to do so.
The Economic Mission, headed by Mr. Abbink,2 is soon going to Brazil. Working with the Brazilians this Mission should acquire the information on which a trade can be based. If the Joint Economic Committee produces a report of such nature as to warrant cooperation. [Page 364] between the countries, then it is my belief that the proper authorities should be instructed to negotiate the trade.
In the meantime there is very little that the Department can do in reference to a petroleum law. If the plan here suggested meets with the approval of the Department, it might be well to officially request Brazil to delay enactment of a law until after the economic study of the Joint Committee is completed.