832.24/7–2346
The Under Secretary of State for Economic Affairs (Clayton) to the Ambassador in Brazil (Pawley)
My Dear Mr. Ambassador: With further reference to your letter of July 23, which was acknowledged August 642 in my absence by Mr. Hamilton, I agree very definitely with you that the tripartite agreement should be cancelled as quickly as possible. Under existing conditions, the agreement serves no constructive purpose, and there is naturally a strong desire in the trade and in government to be relieved of the restrictions and delays on the shipment of rubber and rubber products from the United States to Argentina.
Under cover of his letter dated July 30,42 which apparently crossed with your letter of July 23, Mr. O’Toole43 transmitted to you a memorandum of July 22 reviewing the rubber problem as it relates to the Argentina-Brazil wheat negotiations. Your attention is invited further to telegrams No. 923 of July 11, 1946 and No. 1065 of August 8 which also set forth the Department’s views on this matter.
Contrary to the assertion of the Brazilian Foreign Minister that the second quarter allocation of rubber had not been shipped because of difficulties created by the United States Government, the United States at all times was ready and willing to ship the rubber and only awaited concurrence in accordance with Brazil’s misconstruction of the tripartite agreement.
The Department and the other agencies concerned arranged for the shipment of the first and second quarter rubber quotas to Argentina in anticipation of the signing of a wheat-rubber agreement between Brazil and Argentina. Upon notification that the agreement had not yet been finalized, the Department requested that the shipments be delayed.
The Brazilian Embassy in Washington advised the Department that since Argentina was sending wheat to Brazil in advance of an agreement, it would be all right to ship the first quarter’s allocation of rubber to Argentina; however the Embassy requested that the second quarter rubber be withheld until the negotiations were concluded. Finally about the middle of July the Brazilian Embassy in Washington notified the Department of its approval for shipping the second quarter rubber to Argentina.
The United States is unwilling to purchase rubber from Brazil on the basis of 60 cents per pound, with differentials for lower grades, for resale to Argentina at a lower figure. Also it would not reimburse [Page 148] Brazil by the difference between 60 cents and any lower price at which Brazil might agree to sell rubber to Argentina.
A discussion of any other terms which the United States would approve for a sale of rubber by Brazil to Argentina is academic for the following reasons:
- 1.
- Argentina has full opportunity to purchase in the Far East at 23½ cents per pound all rubber allocated to it by the Combined Rubber Committee. Therefore, Argentina would purchase rubber from Brazil at a higher price only: (a) If rubber obtained from Brazil were not to apply against the CRC allocation, or (b) as an emergency measure pending arrival of rubber allocated from the Far East.
- 2.
- As a member of the Combined Rubber Committee and in fairness to all countries receiving allocations through that Committee, the United States would insist that all rubber shipped to Argentina from Brazil be charged against the Argentine quota. Therefore, there would be no net increase in the quantity of rubber received by Argentina and no incentive to that country to offer more than the price at which rubber could be obtained from the Far East. Since Brazil obviously would not be interested in less than the 60 cents per pound obtainable from the United States, it is unlikely that Brazil and Argentina could agree on a contract.
- 3.
- As an emergency measure, Argentina probably could obtain permission from the Combined Rubber Committee for an advance of rubber against quantities expected from the Far East. However, the United States, as a member of CRC, would insist that any such advance be applied against Argentina’s allocation. Furthermore, the United Kingdom, also a member of the CRC, probably would indicate a preference that the advance be made from London rather than from Brazil.
If, despite this British preference, rubber were allocated to Argentina from Brazil rather than from London, the United States would insist that the Combined Rubber Committee decrease the Argentine quota and increase the United States quota by an equivalent quantity. The reason is that the original United States allocation was made with the assumption that the United States would receive an estimated quantity of rubber from Brazil. Additional supplies from another source would be required by the United States to compensate for any rubber diverted to Argentina. Since Argentina would have no net increase in the quantity of rubber received, it would be likely to offer Brazil a premium price only if rubber could not be received from any other source in time to prevent a stoppage of the Argentine rubber industry.
For the reasons pointed out above it is believed improbable that Argentina and Brazil will reach an agreement for Brazilian rubber. [Page 149] However, should such an agreement be reached, it should be made subject to approval by the Department and the Rubber Development Corporation and to concurrence by Combined Rubber Committee. Under present conditions this approval and concurrence probably would be given.
Sincerely yours,