[Enclosure]
Memorandum by the Counselor of Embassy in
Brazil (Scotten)
Rio de
Janeiro, February 23, 1938.
I inquired of Barbosa Carneiro this morning what the possibilities
are of securing the Germans’ consent to agree to discontinue
indirect subsidies. He replied that he was convinced there was no
chance whatsoever of the Germans agreeing to prohibit subsidies from
their export subsidy organization. He added that he had discussed
this matter at length with the German Ambassador on several
occasions. The latter freely admitted that German exporters were
receiving assistance from German industry. The Ambassador took the
point of view that this was not assistance from the German
Government, and since it was rendered by German industry itself, it
was purely and simply a German internal matter to which no other
country had the right to object. The Ambassador added that if the
Brazilian exporters wished to sell their coffee at a loss, this was
something which the Germans could not object to, and he challenged
the right of Brazil to object to the present practice.
[Page 391]
Barbosa Carneiro stated that with this attitude of the Germans he saw
no use in trying to push this matter further. He added that the
objective of Brazil was to limit the field of German possibility of
competing unfairly with other countries and principally the United
States. This could be achieved in one of two ways: either by
obtaining the assurances which we were asking, or by the imposition
of quotas upon German imports into Brazil. Since the first method is
in his opinion impossible to obtain, he believes that Brazil should
attempt the second method.
I at once pointed out that although of course it would be impossible
to discuss the exact merits of such a method without seeing figures,
etc., I was very skeptical of its efficacy in view of the fact that
it envisaged also the imposition of quotas by Brazil on her own
exports. He replied that Brazil had already placed those quotas. I
answered that the quotas meant absolutely nothing, as far as
American trade was concerned, because they were quotas based upon
the maximum sale of Brazilian products to Germany and do not
envisage any practical restriction on German trade. I stated
furthermore that, as he well knew, it was not the policy of the
United States to attempt to restrict Brazilian-German trade; on the
contrary we would welcome its expansion, provided it was carried on
in a normal way and provided our goods could compete with German
goods under a fair system of commercial competition.
After reflecting a minute, he said, “Yes, of course you are right,
providing the quotas on Brazilian exports remain as large as they
are at present; but I have in mind recommending an actual diminution
of those quotas so as to bring about a practical limitation of
German trade.” He added that of course it would be a very serious
thing to put this system into effect, as, if Brazil did it with
Germany, she would also have to impose quotas on goods from Italy
and possibly Japan, and even France. I again stated that I was
frankly very skeptical of any good which the United States would
obtain from such a system. I recalled that we had received from
Macedo Soares78 in
1936 a positive assurance that Brazilian-German trade on a
compensation basis would be restrained within normal limits.79 Furthermore, we had been
assured by Macedo Soares that the importation of certain products
from Germany, which especially competed with American products, such
as typewriters, etc., would be restricted to the 1934 figures. I
stated that we were unable to see that either of these assurances
had been carried out, and as far as we could see there had not been
the slightest attempt on the part of Brazil to control this trade.
He looked very uncomfortable, but admitted that this was a fact. He
[Page 392]
added that machinery
would have to be set up to control this trade. I then recalled that
we had been assured that machinery would be set up in the form of a
Control Board headed by João Lourenço and that although this Board
had been in existence for two years, we were unable to see that it
had done the slightest thing. Barbosa Carneiro frankly admitted this
to be a fact. He repeated that he would urge upon the Minister of
Finance the necessity of the imposition of quotas on German imports,
and then stated that this was the same recommendation that he had
made before the Financial Mission went to Washington.
I then recalled that the German-Brazilian agreement80 had expired last
June, and that almost a year had gone by and Brazil and Germany were
actually still operating under the old agreement. I stated that our
telegrams from Washington clearly indicated that the State
Department felt that Brazil was not playing ball with us on this
subject. Barbosa Carneiro again looked uncomfortable, and then
brought forth the usual argument that every time there is any
attempt to make the Germans do anything, the German Embassy gets its
agents, who are business men all over the country, to flood the
Ministries of Foreign Affairs and Finance with letters. He stated
that already the tobacco exporters and cotton exporters are
complaining that Germany is not granting import licenses for their
tobacco and cotton, and that every day he receives several letters
in favor of continuing the German compensation arrangement.
I stated that I felt that Brazil was entirely too much afraid of the
attitude of the Germans, and that should Brazil actually bring
herself to the point of taking action in this matter she would find
that the Germans considered the Brazilian market to be just as
important as the Brazilians considered the German market to be.
I repeat that all through my conversation Barbosa Carneiro was most
unhappy and uncomfortable, and I received the distinct impression
that he was at a loss as to what to say and that for his part, at
least, nothing much will be done to rectify the situation in our
favor.
