832.2546/9–1753: Airgram

The Acting Secretary of State to the Embassy in Brazil 1



  • Renewal of Procurement Contracts.

A–68. Reference is made to the procurement contracts dated December 23, 1952,2 between the Government of Brazil and the United States of America covering monazite, rare earth compounds, and thorium compounds. In Article III of both contracts it was agreed that ninety days before expiration of the contracts, consideration would be given to determining whether further arrangements would be mutually desirable.

After a thorough canvass of government agencies, the Department finds that the Atomic Energy Commission will be prepared to discuss renewal of the thorium procurement contract; that no agency of the Government is in a position to renew the contract for rare earth compounds and monazite. There is attached a suggested note3 to the appropriate Brazilian agency expressing these views.

The Embassy’s discussion of these problems with the Brazilian officials should be limited to a discussion of renewal in terms of Article III in the current procurement contracts. However, if the Brazilians raise the question of obligation in terms of the exchange of notes of February 21, 1952,4 the following is provided for the Embassy’s information and appropriate use.

The exchange of notes of February 21, 1952, states, in the final sentence of the first paragraph, that the U.S. Government “is prepared to purchase these materials under the following conditions”; the conditions are then outlined in the seven numbered paragraphs which follow. The Department lays stress on the words “is prepared” and points out that these notes foresee, in numbered paragraph five, further negotiations to work out any firm commitment. The exchange of notes is not in itself a procurement contract; it does outline a basis on which negotiations might be conducted.

It was conceivable that the procurement negotiations might have become deadlocked and no contract developed. The exchange of notes could not, of course, represent an obligation to reach agreement or procurement details. That the negotiations might not actually follow [Page 629] the basis on which the two countries indicated their willingness to negotiate, was also surely a possibility. It is the Department’s view, therefore, that the obligation represented by the notes is essentially an obligation to negotiate and not a firm commitment to buy or sell any specific quantities at any specific price. In fact, no mention of price is made in the notes. In other words, the notes were a good faith indication of the intention of these parties to sell and buy certain products provided agreement could be reached on details of a firm commitment. Negotiations carried out in good faith, whether or not a contract resulted and whether or not they followed the conditions which both countries indicated a willingness to accept, do, in the Department’s opinion, discharge the obligation incurred by the notes.

This was evidently the Brazilian view at the time of the negotiations. The memorandum of September 16, 1952 (copy enclosed5) prepared by Mr. William Freeman,6 who was the negotiator for EPS, describing the negotiations states “it was impossible to execute the contract for monazite and rare earth chlorides, or to execute a contract for thorium on account of the inability of the Brazilians to reach agreement among themselves in connection with the export of thorium. The United States negotiating team had made it clear when they arrived that they could only remain until the 11th of September. It was felt that all points in connection with the obligations set up in the exchange of notes of February 21, 1952, had been completely discussed and ironed out with the exception of the matter of thorium, and that the United States had done all they could in that connection . . . . In the meantime, the whole matter would be held in abeyance with the understanding that whether or not contracts were finally executed, both sides, Brazil and the United States, felt that the intent of the exchange of notes of February 21, 1952, had been completely carried out and that all obligations had been fulfilled.”

That both sides, during the procurement negotiations, believed that the period and the quantities mentioned in the exchange of notes were unrealistic, is clearly brought out in the memoranda of the U.S. negotiators describing the proceedings. Thus, the memorandum of September 12, 1952,7 from Claude Courand, representing DMPA, to the Ambassador states in paragraph three, “the Brazilians indicated that after considerable discussions they had decided that a one-year contract appeared most practicable from their standpoint.”

The memorandum prepared by Mr. Freeman states, on page one, “the Brazilians stated that due to the passing of time they considered that the situation had changed materially and that they felt they would like to carry on the discussions based on the conditions presently existing rather than the conditions that existed six months to a year ago. [Page 630] They indicated that their original ideas with regard to their resources were overly optimistic and that their actual possibilities of supplying the materials involved were much less than they had contemplated. They asked if we would consider commitments for one year rather than three years and quantities not in excess of those mentioned on an annual basis in the exchange of notes (of February 21, 1952).”

The record further shows that although the Brazilian producers probably would have preferred three year contracts, the Brazilian Government officials were more conservative and their views prevailed. Thus, Mr. Freeman’s memorandum on page four states “the producers kept insisting that they wanted a three year contract although they apparently would not disagree with the Brazilian Government officials that to make any definite three year commitments would be completely unrealistic.”

Mr. Emerson Brown’s memorandum of September 12, 1952,8 to Ambassador Johnson states, on page two, “ORQUIMA would like to have a contract for three years on the sale of thorium even at the U.S. price … in order to insure revenue from the sale of thorium which can not be marketed through commercial transactions.”

From all of the above, it seems quite clear that at the time of the negotiations, it was the considered opinion of the official negotiators on both sides that no more than the one year contracts entered into were desirable.

It is, therefore, proper to hold that the two procurement contracts which resulted from these negotiations reflected the only kind of obligation which both sides were willing to undertake in terms of detailed, specific commitments. On the subject of further procurement, the judgment of the negotiators is brought out in Article III of both contracts which states, inter alia, “it is understood and agreed that ninety days prior to the expiration of this contract that the parties thereto will give consideration to circumstances then existing in order to determine if further arrangements would be mutually desirable.” Obviously, this Article can not be construed as an obligation on the part of the U.S. to renew the contract. The contracts contain Article III, above referred to, and in addition state, specifically, in Article XVIII in one contract, in Article XV in the other, “this contract is entered into in accordance with the exchange of notes between the Government of the United States of America and the Government of the United States of Brazil dated February 21, 1952.” It is the Department’s view that such obligation as now exists in this matter is embodied in the appropriate article in the two procurement contracts.

[Page 631]

The Department is aware that, regardless of the merits of the legal argument, if the U.S. follows in this matter a course which is opposed by influential Brazilian interests, undesirable repercussions may result in other U.S.-Brazilian interests such as the long-continuing uranium problem. Every reasonable effort should be made to avoid such repercussions. The Department and other interested agencies, however, can not attempt to arrange procurement of materials which are not now needed in order to forestall this.

  1. Drafted by John B. Hamilton of the Office of the Special Assistant to the Secretary for Atomic Energy Affairs; cleared with the Office of South American Affairs, the Metals and Minerals Staff, Assistant Legal Adviser for European Affairs Raymund T. Yingling, the Atomic Energy Commission, and the Emergency Procurement Service.
  2. The referenced contracts were transmitted to the Department of State under cover of despatch 958, from Rio de Janeiro, dated Jan. 8, 1953, not printed (832.2546/1–853).
  3. Not printed.
  4. The referenced notes were transmitted to the Department of State under cover of despatch 1433, dated Mar. 3, 1952, not printed (832.2546/3–352).
  5. No attachment was found with the source text.
  6. Special Assistant to the Commissioner, Emergency Procurement Service.
  7. No copy found in Department of State files.
  8. Not printed (832.2546/9–1253).