611.32/10–650

Memorandum by the Officer in Charge of Brazilian Affairs (Kidder) to the Acting Secretary of State (Webb)

confidential

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

  1. Supra.
  2. This treaty was not signed. Further negotiations on it did not take place during 1950.
  3. The two countries did not reach agreement on this taxation treaty. According to a memorandum of conversation of September 5, 1950, by Mr. Kidder, one main obstacle to agreement was the opposition of the U.S. Treasury Department to the provisions mentioned here. (611.3292/9–550)
  4. The Department’s press release of October 17, 1950, regarding the Cultural Convention between Brazil and the United States signed in Washington the same day, is printed in the Department of State Bulletin, October 30, 1950, p. 696. Printed with the release are the text of the Convention and statements of October 17 by Ambassador Nabuco and Secretary Acheson. Neither country ratified the Convention. File 511.32 for 1953 contains documentation concerning the circumstances of its withdrawal by the United States.