With reference to numbered paragraph 7, “Status of the Treaty Talks”,
in the attachment1 to the Memorandum for the
President, on his appointment with the Brazilian Ambassador (a copy
of which is appended hereto), I am submitting to you the attached
statement on
[Page 772]
the four
prospective treaties and conventions which we wish to conclude with
Brazil.
[Attachment]
Statement on Prospective Treaties Under
Discussion With Brazil
The Joint Statement of Presidents Truman and Dutra released on
May 21, 1949 envisaged
- 1)
- an appropriate treaty to stimulate the mutually
beneficial flow of private investment,
- 2)
- a cultural convention, and
- 3)
- a convention between the two countries which would
have as an objective the elimination of many of the
factors that result in double taxation.
A further agreement, a Joint Guarantee
Fund scheme, was subsequently proposed by the
Brazilians.
A brief discussion of these four proposed agreements with Brazil
follows:
1. Treaty of Friendship,
Commerce, and Economic Development
The proposal for an FCED Treaty
was initiated by us as the result of the Joint Statement by the
Presidents which actually presumed what might be described as an
investment treaty rather than the longer inclusive form of
treaty. We have submitted a draft to the Brazilian Government
which has made counter-proposals so far only on those chapters
which pertain principally to finance and investment conditions.
The Brazilians appear to be deliberately hanging back on further
discussion of this treaty as their primary interest is in
concluding first the two treaties which are described in
paragraphs 2 and 3 below. It may be added that the objection of
Foreign Minister Fernandes to the more or less standard
expropriation clause in the treaty, a clause which he states is
covered by the Brazilian Constitution, has also held up informal
negotiations.2
2. Double Taxation Treaty
Apart from a Brazilian memorandum on this subject, the matter has
not even been discussed informally with the Brazilians. The
Department has obtained the approval of the Secretary of the
Treasury to send a tax mission to Brazil to explore with
Brazilian technicians
[Page 773]
possible bases for a tax treaty between the two countries. The
Department hopes that arrangements for the Treasury mission to
go to Brazil may shortly be finalized. The Brazilians appreciate
that their desire that United States capital invested in Brazil
be subject only to income charges at the source of profit and
remittances to the United States to be thereafter tax free
involves a radical departure from our present tax theory.3
3. Joint Guarantee Fund
The plan, independent of any suggestions contained in the Joint
Presidential Statement, proposes a Joint
Guarantee Fund half of which will be contributed by the
Bank of Brazil, the other half to come from the Export-Import
Bank in the form of an open line of credit. The original amount
of the Fund would presumably be calculated upon the normal
two-year service of established American dollar investments in
Brazil. In the future as additional dollar investments are made
in Brazil, both parties to the agreement would increase their
contributions to the Fund. Full participation by the
Export-Import Bank is anticipated for a period of five years and
after this time it is presumed that the Export-Import Bank would
progressively withdraw its support and, at the expiration of 10
years, the Fund would stand as an entirely Brazilian instrument,
completely supported and maintained by the Bank of Brazil. A
number of very informal exploratory conversations were held with
Brazilian representatives but they were suspended so we could
judge possible congressional reaction on a basis of discussion
of the investment guarantee provisions of the Point IV
program.
4. Cultural Contention
Agreement with the Brazilians has been reached on the text of a
Cultural Convention of the standard type design to encourage and
stimulate cultural exchange. The text is now being embossed and
it is hoped that arrangements for signature in the near future
here in Washington can be made shortly.4
