810.6176/8–2345: Telegram

The Ambassador in Brazil (Berle) to the Secretary of State

2626. For Department and RDC from the Ambassador and Korkegi. Embassy and Rubber Development Corporation are appreciative of Department’s telegram 2037, August 21.88 Before proceeding definitely we make following comments and would like Rubber Development Corporation reaction:

Cancellation of synthetic agreement. This leaves synthetic stocks of approximately $1,200,000 in the country. It is not unlikely Brazilian manufacturers would use this since it is presently cheaper than natural rubber. On the other hand Brazilian Government might prefer to return to use Brazilian natural rubber. In our view it does not make much difference though financial advantage would lie in latter course since increased use of natural rubber accompanied by production which will probably diminish relieves us of obligation to buy high priced Brazilian natural rubber. Synthetic would then have to be liquidated elsewhere. Possible loss on synthetic would at least be balanced by possible savings on natural.
Cancellation of tire and tube agreement. Rubber Development Corporation is obligated to deliver through third quarter some 60,000 tires and has 17,000 on hand. Cancellation thus puts Rubber Development Corporation in short stock position. Soundness of this depends on whether Rubber Development Corporation is able to cover these requirements in US or knows that tires will be available at same or lower prices from other countries. From Brazilian point of view she has market guaranteed by Rubber Development Corporation for these tires through June 1947. Possibly opening castanha, oil and gum markets would be adequate quid pro quo.

We will proceed on this basis but would like to know Rubber Development Corporation is able to handle short tire position especially in immediate future. It does not follow Brazil would undertake to handle export requirements of other Latin countries since Argentina has already indicated strong desire for purchase of tires in quantities making it impossible to supply other Latin quotas. On Bolivian and Argentine borders ordinary tires are selling for any price from $150 up and immediate effect would be to increase this inflation unless immediate [Page 710] shipments from US, Canada or other countries are contemplated.

Finally Argentine situation must be considered. Unlocking tire agreement undoubtedly will mean immediate sale of tires by Brazil to Argentine at very handsome price without reference other Latin requirements. Are Department and Rubber Development Corporation, bearing in mind political as well as economic considerations, prepared to authorize this? Urgent answer requested. [Berle and Korkegi.]

  1. Not printed.