Volume 207, September 26, 1938 – February 15, 1939

DIARY Book 207 Brasilian Negotiations - Part I September 26, 1938 - February 15, 1939 Book Page Brazilian Negotiations - Part I Foreign Policy Association news letters (confidential) - 9/26/38; 10/10/38 207 1,11 Letter from Minister of Finance giving resume since visit to United States in summer of 1937 - 12/2/38 22 Commerce Department memorandum: "Economic data concerning Brazil for the general information of Secretary Hopkins" - 12/29/38 36 a) Trade of United States with Brazil in 1937 43 b) Changing character of American exports to Brazil - (1/16/37) 55 Proposed message to Brazilian Government stating that Aranha should be prepared to discuss in detail all aspects of subject mentioned in Sousa Costa's memorandum to HMr on 12/2/38 - 1/12/39 98 a) Treasury sends copy of massage to Jones - 1/17/39 95 State Department release: Brazilian Minister of Foreign Affaire Aranha formally invited to visit United States - 1/14/39 92 American Embassy, Brazil, cables giving confidential information from Director of Exchange, Bank of Brazil, et cetera - 1/20-24/39 107 Oerman-Brazil relations: Bank of Brazil from this date on permitted to register new salos of Brazilian products to Germany - 1/25/39 116,117 Basis of discussion with Aranha - 2/1/39 123 a) Conference to discuss; present: representatives of Treasury, State, and Reconstruction Finance Corporation - 2/7/39 145 Personnel available in Latin American field discussed by HWr and White - 2/3/39 133 State Department memorandum on Brazilian negotiations: White comment on proposals - 2/6/39 137 Data on Brazil (summary) - 2/10/39 158 a) Direct American investment in Brazil 161 b) Brazil's debt situation 163 c) Brazil's foreign exchange situation 165 Brazilien proposal - significant features of 166 a) Policy to be followed in organizing Central Reserve Bank of Brazil 169 b) Problem of the external debt 172 c). Arrangement for credit of $20 million to Exchange Department of Bank of Brazil for release of exchange for current trade 179 d) Economic equipment of Brazil 182 e) Outline of Brazilian-American organization for mobilization of national resources of Brazil 188 Conferences (Treasury) 2/10/39; 2/11/39 205,230 HMJr's own program written prior to Aranha visit - 2/11/39. 237 Aranha visit described by HMJr to Lochhead, White, and Foley - 2/11/39 240,247 Regraded Unclassified Book Page Brazilian Negotiations - Part I - (Continued) Proposed concurrent resolution of both houses of Congress to be in the nature of a vote of confidence on propriety of use of Stabilization Fund to purchase Brazilian milreis 80 that Brazil may have dollar credits with which to finance purchases in this country 207 250,254 a) Foley opinion - 2/13/39 248,289 b) Draft sent to Welles - 2/14/39 320 1) Welles strongly advises talking with FDR before they go to the Hill; wants HMJr's assurance Export-Import Bank will be used if Congress objects to utilization of Stabilization Fund - 2/14/39 326 c) Treasury memorandum (revised) for FDR pertaining to proposed Stabilization Fund operation in connection with Brazil 344 1) Copy sent to Welles - 2/15/39 341 d) Feis expresses disapproval of use of Stabilization Fund - 2/15/39 355 1) Welles tells IDWr Feis has asked to be relieved of attending Treasury conferences - 2/15/39 357 2) HMJr - Feis conversation 363 e) Conference with FDR described to Treasury group by HMJr - 2/15/39 357 1) Unhesitatingly FDR recommends Export-Import Bank a) H/Jr thinks FDR was advised against Stabilization Fund advance Conference with Aranha; present: representatives of State Department and Treasury; Knoke also present to give technical assistance - 2/13/39 286 a) Details discussed by Treasury group with Knoke - 2/14/39 300 MiJr's dinner in honor of Aranha - 2/13/39 296 Conference with Aranha and Dantas - Jesse Jones present - 2/14/39 330 a) Outline of Brazilien-American organization for mobilization of national resources of Brazil attached 338 FDR to see HMJr and Welles prior to conference with Aranha - 2/15/39 352 Central Bank discussed by Aranha, Dantas, and Penteado with representatives of State Department and Treasury: Ambassador Caffery; Harrison, Williams, and Knoke (Federal Reserve Bank of New York) - 2/15/39 353 Regraded Unclassified COPY 1 NEWS LETTER ON BRAZIL FROM Charles A. Thomson Foreign Policy Association 13159 Confidential Busnos Aires, Not for publication. September 26, 1938 On the night before I ended my month's stay in Brasil, I met with a group of some twenty university professors, industrialists, writere and economists. One of the questions we discussed referred to Brasil's foreign policy, in the case of & European war. "Brasil will never fight on the side of Germany," declared one member of the group, and his statement found unanimous support. The talk brought out -- what is always so striking to anyone who has known the hostill- ty to Yankee imperialism in many Spanish-American countries -- Brasil's strong tradition of close friendship with the United States. These Brasilians hoped that the American states could keep out of a European war, but, come what may, they held that the nations of the New World should adopt and follow a. common policy. While realists tend to view President Vargas as a political opportunist par excellence, no Brasilians I talked with seriously be- lieved that Vargas would - no matter what flirtations he may have con- sidered in the past attempt to carry Brazil away from its century- old alignment with the United States. In the field of trade Brasil has been willing to talk business with all customers. In the new re- armament program (to which I wast to refer later). Germany won the right to provide the bulk of supplies for the army. But geography, historical tradition and economics are to be counted in the balance on the side of the United States. Moreover. internal factors influence Brazil's attitude to- ward Germany. Brasilians have followed the negotiations on the Sud- eten question with close attention. The arguments advanced for & plebiacite and for the minority rights of German residents in Caecho- slovakia could theoretically be urged also in favor of the German colonies in Brasil. One journalist in A recent article opposed the principle of plebiscites, suggesting that if one were held in Brazil, the Germans and their sympathizers might win a majority in the three southern states of Parana, Santa Catharina and Rio Grande do Sul. While this is an amaggerated statement, informed observers do not minimize the threat of German ponetration. They believe that the Nasis have been disposed to go just as far as they were permitted by counter forces. Representatives of one Brazilian party told me that within the last six months they had been approached by certain Germans high in the business world, who asked what their attitude would be should the State of Rio Grande do Sul separate from Brasil to become a Ger- - colony or protectorate. The Germans offered this party, in re- tarm for a pledge not to oppose such a move, war materials, troops and other assistance to enable them to overtura the Vargas government Unclassified 2 - 2 - and take power in Rio. It who intimated that Italy would support the German move. Dut the beited hook failed to bring & nibble. There is great need for A thorough study - it would take six months oz & year - on the number and activities of Germans, Italians and Japanese in Brasil. Accurate facts are disappointingly scarce. The last national census was taken in 1920, and the next one is not the until 1940. Immigration statistics are an unsafe guide, for до one knows to what degree their totals have been modi- fied by emigration, deaths and other factors. The most recent govern- ment estimates place the number of Italians in the country at 770.000; of Japanese at 134,000; and of Germans at 73,000. This latter figure seems incredibly low, since Sao Paulo State alone estimates its Ger- man population at 27,000: and the colonies resident in the other south- orn states of Parana, Santa Catharina and Rio Grande do Sul are larger in all probability. But the Germans in Brasil have been significant not alone for their number, but also for their close-knit organisa- tion, and their aggressive seal within recent years for spreading Nasi doctrines and influence. This crusade finally became an open threet to Brazilian unity: and the Vargas regime took steps to scotch the danger. On April 19 last & decree barred foreigners and foreign organ- instions from engaging in any political activity in Brazil, and also forbade propagands favoring political parties in the immigrants! home lands. This measure was supplemented by laws in the States of Santa Catharina and Rio Grande do Sul, requiring that teachers in German and other foreign schools be Brasilians and classes be conducted in Portuguese. Such was German resentment at these measures that the Nami "cultural attache" in the Rio embassy, who was reported to have made even the German Ambassador play second fiddle -- the attache WILD A Nazi, while the Ambassador was not -- left for Berlin by special plane. It is not yet clear to what degree this political set-back will affect the German trade drive. For the first four months of 1938. Geruany retained the lead over the United States in Brazilian impor to it had won in 1936 and 1937. At the same time President Vargus bas eliminated from the political scene Brasil's domestic fascists, the Integralists. When on November 10, 1937 he made himself absolute dictator of Brasil, scrapped the 1934 constitution and proclaimed & more authoritarian document, he had the active support of this strong. nation-wide par- 17. The Integralists were led to expect they would play a. prominent role in the nev set-up, with one or more cabinet positions. (Leaders of other Brasilian parties, experienced in the ways of local politica, firsly believe the Integralists were receiving financial aid from Ger- many and Italy: they were spending far more money than could reason- ably be secured from sources in Brasil). But once Vargas had consoli- dated his position, the Integralists were thrown into the discard and Regraded Unclassified 3 3 their party dissolved. After the abortive coup of last May, many of their members were jailed. the party is now underground; some observ- OTS believe 11 effectively crushed and its principal leaders discredit- ed: others recall that it included numerous army and havy officers among its supporters and hold that it still retains sufficient force for 1. coms-back should a favorable opportunity arise. Thus President Vargas has taken action against both foreign and domestic fasciate, and has made clear that his rule is dictator- ship, Brasilian style. If you don't mind, I should like to put in here & few words as to how Brazil, with its Portuguese tradition, lan- guage and culture differs from Spanish-American countries. For Vas- are is only to be understood in connection with his milion. One of the lessons which a visit to Brasil teaches is that Brasilian condi- tions must necessarily be defined in Brazilian terms. The Brasilian largely lacks the Spanish sense of personal dignity: he cares little for "front" or coremony. He is informal, casual. At time he is unbelievably casual. Witness the Integral- ist attack on the Presidential Palace on May 11. The rebels did not trouble to post guards at the gates of the palace grounds; people drove in and out to see the fighting which was going on only twenty- five yards away. The Brasilian is tolerant, not fanatical. He makes no fetish of abstract principle. He lacks the cruelty of the Spaniard. He does not like to kill. The leader of the May revolt was not shot, but given only a ten-year sentence. The Brasilian bas a genius for compromise: he does not recognise sharp lines of divi- aion: he does not make permanent enemies. Brasil does not have a. color line, but rather a color zone -- though the transition from white to black ranges by almost imperceptible stages. The same char- acteristic may be applied to social and political alignments. Brasil lacks a clear-cut Left and a clear-cut Right. The men who today are Vargas' enemies may be in his cabinet tomorrow. It is largely true that because President Vargas corresponde to this medium -- and also to a certain transitional stage in Brazil's political development - he has been successful in holding power. His government is of course & dictatorship. Talk of the plabiacite which was to ratify the November 1937 constitution is seldom heard. President Vargas and his associates are reported to feel they need not trouble with it. They apparently find it more convenient to govern directly by decree, than bother with & legisla- ture. Interventors or federal commissioners, named by Vargas to re- place former governors, rule all states except one. Civil liberties are at the whim of the authorities. Censorship masles the press: Regraded Unclassified 4 there 1s no freedom of speech. One American remarked: "I never at- tempt to discuss politics, except in small groups at private houses: 1 don't write about is in letters, for you never know when they will be opened." Arrests are arbitrary. Just before I left Sao Paulo, some twenty of the most important leaders in the Salles de Oliveira party were seised at the order of the Interventor, and told they could choose between imprisonment and exile from the city of Sao Paulo, 1 talked to men who had beau imprisoned on suspicion for long periods. They left no doubt in my mind B.S to the fact of extensive police bru- tality. It was not "respectable" politicians who suffered, but al- leged comminists and to a lesser degree Integralists arrested after the attempted coup of last May. The Vargas regime rests primarily on the support of the AP- my and navy. IS 18 a military dictatorship: but it is more then that, for it commande considerable popular support, due to Vargas' virtuo- sity at political juggling and conciliation, and to his courting of the masses through social legislation and other means. The presi- dent's supreme political astuteness 1s accorded universal recognition. Vargas does not talk: no one apparently knows what is in his mind, or what he will do next, Re does not hold grudges: if he useda & mn, he will use him, no matter if that man has fought against him in the past: but the discard awaits any man or party whose usefulness is ended. The president balances the power of one political leader with another, one state with a second, one general with his rival. A foreign observer remarked: "Vargas has been double-crossing the generals 90 fast, that he has them all dissy: no one of them knows how long де can stay on his horse." The president 18 careful to 304 that no member of his administration achieves too great power or position. Francisco Campos, Minister of the Interior and author of the 1937 constitution, has seen his personal star MAX and wane. His reported admiration for fascist ideals is balanced by the democratic sentiments of Dr. Oswaldo Aranha, Foreign Minister, former Ambassa- dor at Washington and friend of the United States. In the army, General Goes Monteiro, Chief of Staff, is played off against General Dutra, Minister of War. These two men, formerly friendly, are now reported to be at odds. Goes Monteiro is considered the more able and intelligent of the two, and is rated Brazil's best strategist; he was the star pupil of General Gamelin, when the latter - now France's Chief of Staff - was head of the French military mission in Brazil. Gossip has it that Aranha and Goes Monteiro favor holding the consil- tutional plabiacite and a gradual return to democratic norms, while Dutra opposes the plebiacits, and is suspected by some of ambitions to set himself up as the head of a neo-fascist regime. Talk of Ver- gas' possible overthrow turns most frequently on the Dutra-Ooes Mon- teiro rivalry and friction. Regraded Unclassified 5 President Vargas announced with his November 1937 coup the setablishment of a New State 1n Brasil. Democracy had failed: Rra- sil henoeforth - to have an authoritarian regime, which would uni- fy the country in the face of a chaolic international situation, sup- press subversive influences, and put new afficiency and drive into government. But what in practice, as distinguished from theory. does the New State stand for? 1. Direct government. that is, personal dictatorship. Vargas has ruled Brazil since the revolution of 1930, but there is some truth in the contention that events have limited his opportunities for con- structive achievement. Between 1930 and 1934, attention necessarily centered first on consolidation of the new regime, then its defense against the 1932 Paulista revolt, and finally on the drafting of the 1934 constitution. The first Congress under this constitution vas characterised by one foreign resident as "worse than a Ladies Aid Society": talk blocked action. But with Congress out of the way N- ler November 1937, governmental machinery began to ham. Office- holders were forbidden to hold more than one job: and the efficiency of the Bureaucracy was stepped up. Some of the worst grafters were eliminated. (In this connection Vargas is generally credited with entire personal honesty.) The president and his advisers turned out decrees much more swiftly than Congress had produced laws. Since November 1937 it 1s stated that 500 laws and 3000 decrees have been issued. But much of this legislation is hastily and carelessly drafted. Formerly debate in Congress served to iron out defects, but now that chance is lost. 2. Centralized government, as opposed to the former emphasis on state's rights, which in Brazil has been carried further than in the United States. To use & word coined by Foreign Minister Aranha in an inter- view, the tendency was to "Chinafy" Brazil. In several cases the state militins were armies in all but name; and some were squipped with tanks and bombing planes. Brasil's only anti-aircraft guns were ordered by Governor Flores da Cunha for the state forces of Rio Grande do Sul, but arrived after he had been ousted. States had the power to levy export duties. Now President Vargas has reduced the power of the militins, particularly in those states where they might be used against him; and also decreed progressive elimination of the state export duties. Opposition to this trend toward centralization is strongest in Sao Paulo, Brazil's richest and most productive state, which sooks as far as possible to run its own affairs. 3. Nationalism. I have already mentioned the legislation against for- sign organizations, and the quictus par on German activities. In ad- dition the November 1937 constitution required the shareholders of Regraded Unclassified 6 - 6 - banks and insurance companies to be Brasilians (a provision not yet enforced) and pointed toward the progressive nationalisation of mines and waterpower. Last April a decree excluded foreign interests from the petroleum industry, just at the time when & large refinery of Standard 011 of Nov Jersey was about to begin operations. 4. Rearwament. Along with the nationalistic emphasis has gons a pro- gram to strengthen the armed forces. This had been under discussion for years, but the November coup freed Vargas' hands for immediate action. Brasil plans to spend some $100,000,000 on this program dur- ing the next five years. According to an agreement concluded before the President fell out with the Nasis, Germany is to provide the bulk of material for the army - heavy artillery, light artillery, anti- aircraft guns, etc. Brazil is scheduled to receive from Germany sach year for the next five years 50,000,000 marks worth of supplies, or a total of 250,000,000 marks. Of this sum, approximately five-sixths can be paid in compensated marks, and the balance in free exchange. (Thus in spite of Washington's efforts to discourage Brasil's experi- mente in barter trade, the country - barring a European war -- is com- mitted by this arms agreement to compensated marks for at least five years. A high military authority told me he considered the dependence of Brasil's army on German supplies a great mistake; should a Europe- an conflict break, Brasil would be out off from Germany, would have to turn to the United States for munitions, and would be handicapped by a confusing variety of models in its armament.) For the navy three submarines were bought from Italy. and negotiations are reported under my for three more. Three cruisers were ordered from Ingland, and three others are to. be built in Brasil, using fabricated material from the United States. In this way Brazil plans to secure the cruisers which it originally proposed to lease from the United States. Some observers view Brazil's failure to obtain those cruis- are as & crucial event profoundly influencing the recent trend to- ward dictatorship. According to this theory, the success of Argen- tina in blocking the proposed deal spread consternation among Brasil- lan leaders. Brasil had believed it enjoyed a favored position in American friendship. But Argentina, its most feared rival, had been able to ruin its prospects. President Vargas in reported to have called together any and navy chiefs and pledged them his support in building up Brazil's armed strength against this threatening develop- ment. Thus WBI born the alliance which made possible the November 1937 coup. For only Vargas could give the military leaders the money they wanted. Both of the leading candidates in the presidential cam- paign of that year had obligations to various interests and support- are: neither would be strong enough to take the step which alone could Regraded Unclassified 7 - Y - Regraded Unclassified mike possible the enlarged expenditures for the armament program - suspension of service on the foreign debt. So the elections were called off, and Vargas with the backing of the army and mavy más Ma- self absolute dictator. Now the armed forces are getting what they want, and resumption of service on the foreign debt is & dend issue. 5. A"mixed" economic policy. While the 1937 constitution pointed Brasil toward the "corporative organisation of national economy," the most important recent shift in policy that relating to coffee exports in the fall of 1937 - was away from regimentation and in the direction of liberalism and free trade. The government abandoned price defense, and the coffee export tax was reduced from 45 to 12 milreis a bag. But in May of this year over-production again threat- ened, and & decree required each grower to turn over to the government & "sacrifice quota" of 30% of his production (15% in the case of the finer coffees). However, coffee experts with whom I talked believe that Brazil is approaching an squilibrium between production and nar- ket demand. In the state of Sao Paulo alone between 300,000,000 and 400,000,000 trees have been out down; the coffee borer has reduced output; there seems to be growing recognition that future emphasis must be on improvement of quality rather than increase of quantity. Hopes are expressed that the quota provision may be removed early in 1939, and future reestablishment of control avoided. The fall in the world price of coffee has been compensated in the case of Brasil by & quantitative increase in exports. None- theless Brasil has suffered a recent recession; internal trade is estimated at about 25% below last year, but the decline has been less severe than in the United States. The Braxilian government railroads have under considera- tion purchase of 26 locomotives and 1000 freight care, worth come $6,000,000. The Germans are after the order, and are reported to have offered four-year credits, but are unable to promise prompt delivery. Americans in Brasil, in view of the country's great need for improved and more extensive comminications, argue that it is of strategic importance for the United States to secure this order. At the time of my stay, decision promised to hinge on the ability of the Export-Import Bank to offer credit terms which might compete with those of the Germans. 6. Social legislation. The Vargas regime since 1930 has been respon- sible for a large miss of social legislation, including the 8-hour day. one day's rest in seven, special protection for women and chil- dren, and now a minimum-wage law which is soon to go into effect. While labor supporters deny that this legislation has been very of- factive, employers report that it is enforced to an uncomfortable de- gree. Labor organization is under government control, Thions are B - 8 organized by the government, protected by the government and subor- dinate to the government. Strikes are forbidden. In Sao Paulo city the cost of living index rose from 100 in 1934 to 161 in 1938, the chief increases being in food items; but in other parts of Brasil, particularly the rural districts, the rise vas less marked. Studies made in Sao Paulo estimate 10 milreis (about fifty cents in U. S. currency) to be the minimum living wage, to provide bare necessities for & family of five; but the great bulk of the ungo-earners are 10- ported to receive less than this minimum figure. ?. President Vargas has yet to show achievement in AL field where & dictator usually makes his greatest claims - that of public works. One of the most frequently repeated charges made against him is that he is not a builder. Brasilian cities, such as Rio de Janeiro, Sao Paulo and Bello Horizonte, have been going through a construction boom, and many new government adifices have been erected. But Bruzil has almost no paved roads, outside of 8. ten-mile stretch south of the city of Sao Paulo, and the section connecting the summer capital at Petropolis with Rio. Vargas has promised to ini- tiate shortly paving of the road between Rio and Sao Paulo. Engi- neers also have under survey the route of & railroad across the northern edge of the Chaco to link the Brasilian city of Puerto Is- peranca with Santa Crus in Bolivia. But these developments are still substantially in the project stage. Discussion is again under way on plans to exploit Brasil's vust ore deposits in Minas Geraes, much of which run 60% pure iron. The lack of good coal has handicapped development of heavy industry. but B. number of blast furnaces and mills are now operating with char- coal and petroleum; this year Brazil exported some steel to Argentina. Optimism is expressed in certain circles at the possibilities of & new process for smelting at low temperatures. Some of Brazil's present leaders argue that if the country is to escape from a colon- ial status, where it exports raw materials and competes with plantation countries with low economic and social levels, it must industrialize, and should exhaust all efforts to that end. How long can Vargas stay in power? No one in Brasil will answer this question, for no one knowe. The President's wisardry at political juggling is an essential element in his success. But it also makes for almost a daily shift in guesses and for continuing us- certainty concerning the eventual trend of Brasilian politics. No one knows when Vargas' hand may slip and some one of the many balls in the air may ascape his grasp. The most experienced observers Regraded Unclassified 9 - 9 - take refuge in the assertion that practically anything can happen. There are some who believe that opposition to the present regime is gradually coalescing. Tot this opposition may lack opportunity to strike, unless Vargas suffers defection on the part of his military associates. or the economic curve takes an acute turn downvard. Should he hold on indefinitely, the continuance of diclatorship or & gradual return so democratic processes 18 likely to be determined by the relative strength of the various domestic and international pres- sures which play on the "fox of Cattete." I don't want to close without at least a brief reference to the matter of cultural relations. This is not the time for any de- tailed analysis or definite recommendations. But my whole visit to Brasil only served to underline the words of Foreign Minister Arenha that "it is terribly important for our two peoples to understand each other." It is substantially true that we in the United States know least about the country in South America which is most important to us. Let me limit myself here to two or three items which bear on this subject. First, Brazilians reveal to a unique degree a widespread desire, & genuine eagerness for closer ties of understand- ing with the people of the United States. One American diplomatic officer remarked, "Ne official representatives usually have to work very hard to develop interest in our country; here we have that in- terest served to us on a silver platter." Yet many Brasilians feel that we have come to take their friendship for granted; and that we believe no particular effort is necessary to retain it. One writer told me: "The United States has abandoned us; we are a nation of 40,000,000 people: we play an important role in South America: but you pay no attention to us. Italy and Germany are doing their best to win us for fasciam. They furnish material to our newspapers) they have our journalists in their pay. They send us professors and lecturers. They give us radio broadcasts in Portuguese. But the United States is losing us. You need not copy fascist methods. But ve need your active interest and support." The situation in Sao Paulo University may serve as a case in point on the present situation. On its arts faculty are ten Ital- lan professors and eight French. In addition to their Brasilian salary (which is low in comparison with foreign standards of living). their home salary is continued, their time in Brasil is considered double for a. retirement allowance, and they are granted travelling expenses to return home once a year. The only American professor on the faculty is without any of these perquisites, which actually do not rank as luxuries, but serve to balance up the debit items involved Regraded Unclassified 10 - 10 - in working abroad. His role is not that of propagandist - certainly not, in the narrow and derogatory sense of the word. He is trying to do a sound and scholarly job of teaching American history. In addition, his command of Portuguese has opened to him nerspaper columns, which have given his interpretations of American life a wide audience. Yet he has no support from his home land. In & situ- ation which is complex and unstable he stands alone. I cite this particular instance only because it illustrates a definite problem, on which we have yet to make any effective at- tack. COPY 11 news LETTER ON PARAGUAY Charles A. Thomson Foreign Policy Association Confidential Buenos Aires Not for Publication. October 10, 1938 Thanks to the kindness of Ambassador Spruille Braden, I have just witnessed the signing of the Chaco arbitral award, which de- finitely fixes the boundary between Bolivia and Paraguay. The ceremony was held under the white and gold magnificence of the 'salon de honor" in the Argentine Foreign Office. Thus, the road to the long-sought peace 10 finally free of the last serious hurdle. In passing, I might say that informed opinion generally accorde Spruille Braden major credit for the successful conclusion which has happily crowned three years of delicate and arduous negotiations. During my recent visit to Paraguay, I found that country ready to welcome the Chaco peace. The overwhelmingly favorable majority in the plebiacite of August 10 surprised even the most experienced political observers. Geronimo Zubizarreta, the Liberal leader who had refused to sign the pact, found no support for his intransi- gent position. The voting in the plebiacite seems to have been sssentially fair; it is reported that the government was prepared to use pressure to secure a. favorable result, but found that such intervention would be superfluous. Opponents of the peace terms had criticized most the failure to give Paraguay any share in the alleged petroleum wealth along the western edge of the Chaco. Their chief complaint against the plebiacite was that its phrasing was loaded in favor of an affirmative vote. But they now appear willing to accept the popular decision, and declare that Paraguay will loyally abide by the peace terms and that no subsequent govern- sent will question their val:dity. The war has mnde the army the dominant factor in the country. In the past, two major parties disputed control of Paraguay. At the end of the disastrous Five Year's War with Argentina, Brastl and Uruguay, A group of generals organized the Partido Nacional Republicano, known as the Colorados. This party ruled for 34 years, from 1870 to 1904. Meanwhile, civilian elements had formed the Liberal Party, and this group. although plagued at times by fac- tional strife, dominated the political acene from 1904 to 1936. Foreign observers report that the Liberals are more blessed with able and intelligent leaders than their traditional opponents. In February 1936 the Liberal president, Dr. Eusebio Ayala, who had served throughout the war, WE overthrown by Colonel Rafael Franco. The Franco movement was backed by restive SI- service men - demobilized after fighting ended with the armistics of June 1935 - by labor unione and by some students. These elements considered the old parties discredited and sought a nee political and economic alignment. Moreover, Ayala's position had been weakened, due to fears that he sought a second term, Regraded Unclassified - 2: 12 and to the jealousy excited among military leaders by the special favore heaped on General Entigarribia. Franco's regime made scies afforts at land distribution end put on the books several pieces of social legislation, including establishment of a National Da- partment of Labor, with power to nettle industrial disputes. But politically his administration vas & hybrid. Juan Stefanich, the leading figure in the cabinet, was credited with somi-faecist Ideas and A nationalism which would return Paraguay to the dicta- torial traditions of its first half century as a nation. Lebor and the students, on the other hand, had been influenced by com- munial and mocialist ideas. Franco failed to get his dissident supporters to pull together, despite efforts to units them in & new party. Ha also proved unable to hold the entire support of the aray - whose war-time leader, General Estigarribia, he had imprisoned - or to snlist the backing of the more solid and con- servative civilian leaders. His government was overturned in August 1937 by certain army officers, la alliance with the Liberal politicians. A provisional regime, headed by felix Paiva, a professor, was set up. But the civilians in the present government are de- acribed as substantially "messonger boys" for the army officers, who hold the actual reine of power. Four sen particularly stand out: Colonel Bamon Paredes, & shrewd politician in uniform who occupies the ranking cabinet post of Minister of the Interior: Colonel Antola, commander-in-chief of the aray; Major Arturo Bray, half-English in blood, who fought with Britain's forces during the World War, and who now 1a Chief of Police of Asuncion: and Major Sons Valdes, commander of three cavalry regiments. All of these sen are under 45 years of age. Their rule is in effect a mill- tary dictatorship, which justifies itself on the ground that Peraguay needs above all order and tranquillity. The press is closely censured, and offending newspapers suspended. Many of the most important opposition leaders are in exile. The relation of this reigning quartette to General Estigarribia is not entirely clear. Some observers believe that the "Four Horsemen" prefer to keep Estigarribia in his present post in Washington, fearing that if he returns to Paraguay, they will be eclipsed. Some sentiment orists in the country for establishment of & strong national government, with Estigarribia at the head. On the other hand, it is reported that Setigarribia himself would prefer not to take office during this transitional period. Aray leaders declare that Paraguay is fundamentally & demo- cratic country, and that their rule 18 temporary. Congressional elections were held OA September 25th. The Colorados withdrew from the contest on August 31, charging lack of guarantees and official pressure in favor of the liberals. In consequence, the Liberals had no opposition and captured all seate in both houses. Paraguay has a compulsory voting lav, so the Colorados cast blank ballots at the polls. whose number was reported to approximate 13 - 3 30% of the total 125,000 votes cast. Despite this none too on- couraging venture teward democratic "normalcy". hopes are expressed that the convening of congress will permit civilian influences gradually to reassert themselves. and that the process will be continued by presidential elections next March. On the other hand, some military leader may upset the apple-cart by another sttempt at dictatorship. The aray, which 1e believed to number around 15,000 men, still consumes from 60 to 80 percent of the government budget. The country's economic situation MAY decide the tssue between democracy and dictatorship. Paraguay came out of the Chaco conflict with increased 000- nomic strains; and this despite the fact that it fought the modern world's most economical war. Paraguay ended the struggle without any major increase in its foreign debt, which now stands at 600,000 pounds sterling - for a nation of less than 1,000,000 people. Bankers estimate that the internal debt does not exceed 13,000,000 gold pesos (or about $9,000,000.). Service on the foreign dobt was suspended during the conflict, but both interest and amortization payments have since been resumed. Food was not rationed; agricultural production was markedly increased. Paraguay now imposes no quotas on imports and only partial exchange control. Government salaries are paid up to date. During the struggle the common soldier was paid at the rate of one Paraguayan peso a day, and the total per diem cost per man, including supplies and food as well as pay, did not exceed, according to the Minister of War, nine Paraguayan pesos. (The Paraguayan peso is now quoted at 70 to the Argentine peso, or approximately 280 to the dollar.) How did Paraguay carry on its war-time financing, In addi- tion to using its mall gold reserve, it requisitioned the great bulk of foreign exchange accruing from exports, paying exporters 110 equivalent in paper pesos. With this exchange 11 purchased what supplies were imported. The paper pesos were of course the product of the printing press, and the result was serious infla- 1100, the paso declining from 19 to the Argentine peso to & ratio of 90, before recovering to the present ratio of 70. Moreover, the Government requisitioned annually from cattle-growers some seven or eight percent of their herds, paying them in script, which subsequently has been exchanged for gold paso bonds, and was included in the figure for the internal debt just mentioned. Local banks and business houses also made relatively small loans, which in great part are reported to have been repaid. Outside purchases of military supplies were cut to a minimum. Paraguayan leaders declare that the country started the war with at army of 3,000 man, of whom only 1,000 were in the Chaco. (Some 14 informed sources, however, raise the 3,000 figure to 5,000.) It had at the finish $0,000 to 100,000 men, but never any more than 25,000 in the front line. Officials state that foreign purchases were principally rifle and machine-gun ammunition, some artillery ammunition, and a few planes, with ten the maximum number in active service at any one time. They assort that Paraguay imported no artillery, no hand-granades, no airplane bombs. Supplies of the last two items ware supplied by a domestic war industry. The hand-grenade became a very important weapon, the soldier often preferring it to the rifle: production started at the rate of 30 a day and finished at the rate of 130 an hour. Truck bodies at the start were turned out at the rate of one every seven days: at the end seven per hour. But the Paraguayans assert that their best source of supplies was Bolivia, and that at the end of the war 80 percent of their armanent had been captured from the enemy, including 40,000 rifles. They started the war with We pieces of artillery and finished with 66: yet, General Zetigarribia told me that for months at a time the artillery was silent for lack of semunition. Peraguayan leaders are also united in denying that they re- ceived any large-scale aid from Argentina. They assert that the Buenoe Aires government facilitated them no loan (although there were some short-terms transactions with Argentine banks), or sup- plied them with any munitions. However, when the League embargo was on, Argentine officials are reported to have shut their eyes to transit of European shipments up the Parana River. The Para- guayan army included a so-celled Argentine regiment, but this was recruited in the Argentine province of Formosa, which is largely populated by Paraguayane. An Argentine military mission was eta- tioned at Asuncion when the war broke out, bút this was promptly withdrawn. The Paraguayan aray had the helu of a few foreign officers, including a number of White Russians, but only a. handful of Argentines. These Paraguayan denials, however, have not served to convince some foreign observers of the entire absence of Argen- line assistance. Proof of this cooperation is lacking, but sus- picion lingers. I pass these facts and figures on to you, for what they are worth in our present state of knowledge. It is largely true that Paraguay 1s a country of no statistics and few definite facts. What you learn is always approximate, an 2 menor. more or less. Written sources are few, and verbal statements need to be checked and re-checked. for example, take the rise in the cost of living which the Chaco War and inflation have brought to Paraguay. A leading lawyer told as that since 1932 it had gone up three times, reporting that he had to send his servant to market with 600 Paraguayan pesos now instead of 200. Regraded Unclassified 15 - 5 Then I case upon the manager of a foreign bank wrestling in his office with a sheet of prices; the salary of his Paraguayan employees shifts with the price level. Be ventured with some caution that the cost of living had gone up between 300 and 400 percent. Then I talked with a group at the National Confederation of Labor who asserted that the rise was 600 percent. I put it down as a. Paraguayan fact that the increase had been at least three-fold. But wages have lagged behind, and consequently there is come ground for discontent. The common laborer in town makes about 150 Paraguayan pesos a day, in the country about 100 (respectively 50 and 35 cents in U.S. currency). Wage figures furnished by labor leaders indicate & general rise of from 200 to 250 percent from 1932 to the present. The labor movement claims some 25,000 members. The strongest unions are found among the port workers and in build- ing construction, packing houses, textile and shoe factories, and on the railroade and street-care. In 1931 the labor unions were dissolved by the Guggiari government, but with the accession of Colonel Franco in 1936, they came out again into the open; the National Confederation of Labor was formed, and some gains were made. Leaders now advocete a. moderate policy and "democratic" tendencies, and play down socialist and communist ideas, which in the past had won some ground. Nonetheless, the danger of "communism" is cited by the military as justification for the present dictatorial government. It serves equally well those Peraguayane - chiefly army officers and war veterans - who think of themselves 0.8 fasciet, and who organ- ised the "Frente de Guerra". One colonel told me, "The officers are fascist principally because they are opposed to communism, which 18 the worst type of dictatorship: and in the past communist 1deas have been strong among the masses." The "Frente de Guerra" has attacked both old parties, criticises "eloppy" democracy. and arguse for nationalism and dictatorship. Opinions differ widely as to how such real influence it has. Amide from the "Frente," 11 does not appear that Nasi and fascist influences have made much dent. Some of the Dewspapers carry Italian and German propaganda; both nationalities run schoole in Asuncion, but chiefly for their own children, rather than the Peraguayane. The Franco government ordered 36 airplanes from Italy - - Caproni bombers and Fiat fight- ers. The first shipment recently reached Asuncion, but has been held in the customs until Paraguay was ready to make payment. But now that the Chaco war is over, the government does not need the planes, and is reported to be shopping around to find a customer for these unwanted goods. The nost interesting foreign influence 1a Paraguay is that of Argentina. There is no doubt that this "backwoods" republic, which has been frontier country for three conturies. falls within Argentina's economic empire. But this is not due primarily to Regraded Unclassified 16 - 6 - heavy investments of Buenos Aires capital. Argentines are the largest landholders in the Chaco. but at that the worth of their vast tracts probably does not exceed $5,000,000. Argentine eapi- tal is also reported in the railroads, and in the street-care of the capital. It also controls the Wihanovitch line, owning the most important steamer fleet which links Asuncion with Buenos Aires. And It is through control of communications that Argentina has what some Peraguayans feels is a. strangle-hold on their sconomic life. For most of Paraguay's foreign trade goes down the river, the greater part of it on Mihanovitch boats, and much of 11 is transshipped at Buenos Aires. If Argentina closss its poris, as happened a year ago when yellow fever was reported in Paraguay, this inland recublic is cut off from the world. Sence, the au- thorities at Asuncion are playing with the idea of an outlet through Brasil, either by road via Igusesu to open up to tourist traffic the femous falls there: or by extending the Concepcion- Horqueta railroad line to the northeast to meet a similar pro- jected line on the Brazilian side. But appealing as these projects look on the map, their economic utility is highly dubious. I must, however, say a word for the Iguaseu Falls, which the guidebook reporte are higher than Niagara and half again as wide. I flew over them on my way from Sao Paulo to Asuncion, and they are worth going a long way to 800. In addition to military dominance and some economic disloca- tion, the war has bequesthed Paraguay a new outlook on the future. Captain Bossano, Minister of War and graduate of M.I.T. at Boston said to me: "Now a shadow of thirty years has been lifted. In the past we have had our thoughts centered on a war which we knew we would have to fight sometime. But now we can look ahead to constructive endeavors." A professor reviewing the results of the war declared: "It changed our national morale from that of 8 de- feated nation which believed it could do nothing - the heritage of the Five Years War - to that of a victorious people with grow- ing assurance and self-confidence." Paraguay is talking of recon- struction. It recognizes it has to start almost from scratch. In a conversation with ex-President Ayala here in Buenos Aires, he sold no that a. 1935 survey of Paraguay's 130,000 farmers revealed that they possessed only 5,000 steel plows. The seed commonly used is old and run down. New seed, new implements would multiply production and economic wealth. Given pasce and the help of a. little foreign capital, Paraguay's leaders hope that they face toward a. future of growth and promise. Regraded Unclassified 17 November 28, 1938 3:05 pm Present: Brazilian Ambassador Mr. Taylor Ambassador: Mr. Morgenthau, I came to thank you in the name of my Government for the conversation you had the other day with our Financial Attache. My Government highly appre- ciated what you had told to Mr. Penteado and they intend to take avail of your offer and you asked that he have some plans to submit to you. Anyhow, it would be very kind of you if you could tell me something about your ideas on this subject. HM,Jr: I see. Well, my ideas are rather vague. Mr. Souza Costa was up here about two years ago and we made this arrangement with him, which your President and my President discussed when they were riding in an automobile together. It was a step towards closer cooperation, but your country has not been able to avail itself except in one instance. Now, my thought was the heads of your Gov- ernment and ours talk about closer cooperation and I thought maybe we could get down to being B. little practical about it. Ambassador: I think BO- HM,Jr: I have nothing very definite. The only possible suggestion I had was -- I don't know as much about your problems as I should -- and that 1s one thing I would like to be taught more about your problems, because I know very little -- would be the possibility, if you care to you might ask your Government what are the various proposals which are in the air. For instance, the head of our Export-Import Bank comes back and talks about locomotives. I don't know how many other things 18 -2- like that. But, if you could possibly get them all in your hand and then Just what your Govern- ment has in mind, for instance, in the way of purchases. In order to get this thing really started, I would be delighted to sit down with you and go over these different proposals. Now, as I say, someone says locomotives, someone says something else, but I don't know and if your Government would let you know "these are the items we are interested in; we need this; we need that," giving you the whole list of things that you have in mind that you need. Then if you had that, we could sit down and I might be able to be of some help. At least, I want to be of some help, but the only way I can start Ambassador: of course. HM,Jr: ... 1e this list. "My country needs this. What can you do to help?" I want to help. If I am not successful, it is not be- cause the heart isn't there, and before starting these conversations I spoke to President Roose- velt and he said by all means go ahead. I spoke to the Secretary of State. He said by all means go ahead and"anything that you can do will be wel- comed by us". Ambassador: I thank you very much. HM,Jr: Bo that is the only thought that I had and if we could put them down -- here are the various ideas -- maybe between us we can work out some method of doing business which would be ad- vantageous to your Government and fair to mine. But there are 80 many things in the air and I am B. very practical person. I like to get them down, stated very sinply, and then Just like two busi- ness men talk it over man to man. Ambassador: I thank you very much. HM,Jr: And if we could do that, that would at least be a etep forward. I don't know, maybe it's 8 question of terms and maybe credit or some- 19 -3- thing or other, which, if Mr. Taylor and I sit down with you and your people -- I always think when the will 18 there a way can be found. Ambassador: I think 80 too and I think that our problems are not so difficult. They seem to us to be very difficult because of being a country full of possibilities, but poor. We think our difficulties are terrible, but they are not. HM,Jr: I assure you, Mr. Ambassador, if your Government will put that information at your disposal, I would be delighted to sit down and go over it with you. Ambassador: I thank you very much indeed and I will just cable down the precise nature of the offer and to let them know that they must pre- sent some plan in a practical way. HM,Jr: And out of that I am sure something will come. Ambassador: I am sure too. HM,Jr: But I think it's time .... Ambassador: I think the moment is abso- lutely opportune, the finest moment that we could imagine for such a thing and I am sure that we will reach an agreement that will be favorable both to Brazil and the United States. HM,Jr: And anything that they have in mind, financial, commercial, whatever they have -- don't send too much at first. Ambassador: No. HM,Jr: But at least something which we can talk about. I asked Mr. Taylor to find out what there was and he understands there 1s something about locomotives. Well, there may be a dozen of things. Mr. Taylor: There are various other things, Regraded Unclassified 20 in the air. Frankly, we feel that we are handi- capped because we don't know what's in the minds of your Government. Some of our commercial people will come to us and Bay the Brazilian Government wants to do this. We don't know whether they want to do it or not. Ambassador: I very glad personally because I have written to the President one or two lettere. I have told him the same thing you are telling me. Very precise. Very clear, to make it possible for you, and for 'll 8 to give you all the possible guarantees humanly possible. HM,Jr: It's Just to get a method started and after we have the method started we can turn it over to our experts, but the thing 18, 88 Mr. Taylor puts it, 80 many things, all very vague, I thought maybe we could get down to being practical. Ambassador: I think 80. I think the chief problem of Brazil 1s the problem of transportation, because we have many kinds of riches in Brazil. We are a very rich country, but our riches are out of contact, let U.S say, like that with the foreign markets. HM,Jr: Well, any time you are ready, if you will let me know, I will be delighted to sit down again. Ambassador: I thank you very much. I was an admirer of your father when he was Ambassador to Turkey. I WAB Minister to Turkey and I had op- portunity of reading his memoirs and they are very, very interesting and even now when I see what the Germans are doing to the Jews, we had all these troubles -- I remember that your father was Ambas- sador to Turkey and there was extermination of the Armenians and your father worked for these people that were killed to get assurance for the families. HM.Jr: What years were you in Turkey? Ambassador: I was there in 1931 and 1934. HM.Jr: You know, the French Ambassador was 21 -5- in Constantinople. He was Secretary of the Embassy when my father was there. He was one of the younger Secretaries at that time. So it 18 a emall world. I hope to see you soon. (The Ambassador left at this point.) **** Mr. Taylor: Terrific! That's Just the right approach to it, because the people, 80 far, have not been able to tell what the Brazilians really want to do. They have to rely on these peculiar conversations and then some locomotive manufacturer will say the Brazilian Government wants this. We don't t know whether they want to do it or not and have to go through this elaborate checking. HM,Jr: This will get it. He's smart. He gets it. I wonder what his background 1a. 22 2 de Dezembro de 1938. Prezado Senhor Morgenthau 1. o Dr. Eurico Penteado transmitiu-me através do meu 00 lega das Relações Exteriores a Mensagem que, em nome de seu Go verno, teve a bondade de mander-me e ao meu Governo. 2. Antes do mais, quero ratificer os agradecimentos que enviei, em telegrame, depois de tudo ter informado ao meu Presi dente. 3. A cooperação entre 08 nossos paises era e é dificulta da pela impossibilidade que tem tido o Brasil de ajustar-se,por causa de sua economia e finanças e a despeito do desejo de seu Governo, às normas que a economia e finanças americanas impõem ao conjunto da vida de seu país. 4, 0 oferecimento de ajude por parte de seu país ao meu, torns mais próxima a realização da aspiração do meu Governo de ume efetiva e real comunhão de interesses e solidariedade entre OB Estados Unidos e o Brasil. 5. Quando af estive, no verão de 1937, consideramos a possibilidade de efetiver un depósito em ouro no Federal Reser ve Bank, utilizando disponibilidades em divisas no mercado exte rior e operando por crédito à base desse depósito, nos termos do ajuste feito. 6. As condições da economía mundial na segunda metade do Regraded Unclassified 2- 23 ano findo, repercutindo na vida do meu país, agravadas pelas consequências da orientação dada aos negócios de câmbio, duran- te B. minha ausência, impediram a realização do programa 6 leva ram-nos ao restabelecimento do controle de câmbio afim de pre venir maiores males. 7. Em Novembro de 1937, dada a atitude dos diversos pai ses produtores, modificamos a política do café, enfraquecendo fortemente, por ease modo, o ativo de nossa balança de comér- cio com a importância relativa à diferença do preço-ouro,o que contribuiu para nos obrigar À suspensão temporária do atendimen to dos compromissos de nossa Dívide Externa. 8. A partir de Maio deste ano começarem 8 se fazer sen tir os resultados da política de câmbio adotada e de então pa ra oá se tem verificado seldos em nossa balança comercial, de vendo-se ainda considerar a circunstância de que 08 números a presentados pela estatística, no regime de monopólio cambial, indicam sempre resultados peiores do que 6. realidade, pois a isso conduzem 08 processos de fraude empregados e que não se po dem evitar inteiramente, por mais energica que seja a ação fis celizadora. 9. Os fatos demonstram que nos aproximamos, sempre mais, da situação em que poderemos restabelecer a liberdade cambial, o que allás pode ainda demorar mais do que seria de desejar. Precipitar 6880 solução, na situação atual, seria provocer uma queda do valor do milréis e redução ainda maior do poder aqui- sitivo do meu país, o que não seria nem da sua própria conveni ência nem do objetivo comum que nos preocupe maior expansão do intercambio entre os nossos dois paises. 10. Restabelecida 8 situação que permite o abandono do 24 monopólio de câmbio e 8 volta ao regime de liberdade cambial, crearemos imediatamente o Banco Central de Reservas nos moldes já estudados, ficando a emissão monetária seu privilégio exclu sivo. 11. Obtido um poder aquisitivo externo conveniente e 600 nomicamente ajustado através de equilibrio mais ou menos pro longado da balança internacional de contas o Banco Central manterá B. estabilização das taxas cambiais com 88 principais moedas, utilizando um "fundo de equalização" a ser paulatine mente creado, no caso de ser impossivel constitui-lo por outra forma. 12. Condição fundamental para o Axito dessa politica mo- netária é o equilibrio orçamentário, contra o qual conspire no meu país a pressão de necessidades inadiaveis, quer para o seu reaparelhamento econômico, quer para a defesa nacional. 13. 0 Governo acaba de fazer estudar em cada Ministério todas essas necessidades coletivas a satisfazer, as quais fo- ram relacionadas para serem realizadas dentro das linhas gerais de um plano sistematico que será traçado de acordo com as pos- sibilidades. 14. A rapidez com que pudermos satisfazer tais necessi- dades permitirá, mais ou menos facilmente, atingir com Sxito os objetivos que temos em vista e, desse modo, será altamente va liosa a cooperação do seu país, facilitando-nos a execução do programa que assegure 8 expansão de nossas forças economicas. Somente por ela poderemos satisfazer 88 demais necessidades e aos próprios compromissos assumidos no passado. 15. A realização das compres que temos de efetuar para resolver o problema dos transportes, terrestres e maritimos,se -K- 25 feitas no mercado americano, em condições de prazo longo, pode ria permitir-nos considerar desde Já, em conjunto, o quadro das que mais carecemos, 16. Não me parece necessário entrar em considerações pa ra esclarecer a alta significação que teria para nós o aasegu rar em período breve o aumento da produção nacional. 17. A satisfação das necessidades inadiaveis através de um plano de financiamento das vendas de material, cujo pagamen to se enquadrase nas possibilidades de nossa receita, teria praticamente assegurado o equilibrio orçamentário. 18. A creação do Banco Central, permitindo a continuação da política monetária 6 8 defesa do valor da moeda, colocaria o Brasil em posição econômica facil de ser defendida, dentro da mesma política internacional do seu país. 19. & diversidade de situação em que nos encontramos 6 que compele o meu país a buscar por outras formas 08 recursos de que carecemos e que precisamos obter, mesmo quando obriga- dos 6. sacrificar alguns principios, que se harmonizam com & nos sa tradição e costumes, mas que se não compadecem com a premên cia de necessidades que temos de satisfazer. 20. o atendimento das necessidades a que nos referimos, realizado com metodo, dentro das possibilidades reais de nosso orçamento, 6 a creação do Banco Central, para execução de uma política monetária capaz de dar estabilização relativa do po- der aquisitivo do milréis, não só no mercado interno, mas no externo, constituem assim os objetivos principais de nossa po Iftica financeiro-econômica. 21. & colaboração que nos oferece o Governo de seu país 6, portanto, altamente oportuna a poderá concorrer de modo de- -5- 26 cisivo para o Bxito do que pretendemos. 22. A política que desde Novembro vem sendo seguida en re lação ao café assegura para esse produto uma situação, peior hipotese, de estabilidade nos preços, nada autorizando & previ são de uma queda maior de cotações. 23. A importação do país não apresenta, igualmente, ten dência para alta e, principalmente, se as aquisições de mate- rial 8 serem feitas pelo poder público obtiverem condições fa- voraveis de prazo, 24. Desse modo, apenas o atrazo relativamente pequeno mas que existe no pagamento de mercadorias importadas cerca de £ 3.500.000.-/- influiria como elemento de baixa, no caso de se restabelecer imediatamente a liberdade no mercado cambial para a cobertura de importações. 25. Obtido que fosse um crédito, permitindo essa liquida ção em prazo razoavel, estariam vencidas 68 dificuldades para 8 normalização do mercado de câmbio, devendo-se manter o con- trole apenas para as transferências de capitais, de lucros 8 outras remessas de carater não comercial. 26. Para avaliar B extensão em que podemos utilizar 8 00 operação que nos oferece para 8. solução das dificuldades de ou tra ordem e que entendemos como sendo as relativas à satisfa - ção das necessidades de reorganização econômica e defesa nacio nal, é indispensavel, para a apresentação de qualquer sugestão concreta, conhecer o máximo de prazo que nos poderia ser conce dido em crédito para aquisição de material. As propostas que até aqui têm sido feitas por fornecedores belgas e, principal- mente,alemAes, não vão além de seis anos, condições estas que, como é evidente, restringem muito a nossa capacidade de reali- Regraded Unclassified 27 zação. 27. De carater financeiro a última proposta que recebi foi de un grupo de bancos suiços. Foi-me apresentada pelo Se- nador Mollard, Presidente da Comissão de Obras Públicas do Se- nado Francês, que age no entanto em carater pessoal 8 sem ne- nhuma interferência do Governo de seu país. 28. 0 plano foi Julgado interessante e está sendo objeto de estudos pelos técnicos do meu Ministério. Em grandes linhas, consiste no seguinte: a) - Organização de uma sociedade de capitais franco- brasileira que tomaria a seu cargo a realização das obras in dispensaveis, de carater público e capazes de produzir renda. Os capitais na sua maior parte seriam trazidos do exterior e o Governo Brasileiro garantiria um dividendo mínimo aos acionis- tas; b) Abertura de um crédito em francos franceses pa- ra a efeito exclusivo de permitir a creação do Banco Central Emissor e promover o saneamento e estabilidade da moeda. Em ligação com esse plano o Governo promoveria a na- cionalização de dívida externa, substituindo os títulos em moe da estrangeire por títulos em moeda brasileira, em condições a serem estudadas. 29. Desde logo devo lhe esclarecer que esta conversão da Dívida Externa contraria a impressão que sempre tivemos de que o acordo das dívidas deve ser feito na base das moedas em que foram contraidas. 30. Reconhecemos 8 alta conveniência de promover desde logo os necessários entendimentos para esse acordo, parecendo- nos, no entanto, que ele só pode ser examinado de modo util pa 28 - 7 - ra os interesses reciprocos - dos portadores de títulos e do meu Governo - quando resolvidos os dois problemas a que me re- feri. Obtido isso, o aumento natural que terá 8 exportação de nossos produtos permitirá o cumprimento de um esquema razoavel. 31. Em grandes linhas apresentei nesta carta ao ilustre colega as dificuldades que temos de enfrentar e os resultados que venho obtendo e, bem assim, os meios pelos quais a coopera ção que o seu Governo oferece pode nos ser de alta utilidade, acelerando os resultados e aumentando o interesse reciproco das nossas relações comerciais e políticas. Aguardando confiante a sua resposta, apresento-lhe as mais atenciosas saudações. am into att I. До Exmo. Snr. Henry Morgenthau Jor. Secretário do Tesouro - Washington. 29 (TRANSLATION) My dear Mr. Morgenthau: Mr. Eurico Penteado has sent me, through your Foreign Office, the message you were kind enough to address to me and my Government, on behalf of the American Govern- ment. 2. First of all, I wish to renew the expression of my appreciation which I endeavoured to convey in my telegram after having duly informed my President. 3. The cooperation between our two countries has been hindered by the difficulty which Brazil, due to her economy and finances and in spite of her Government's desire to do so, has found to adjust itself to the rules that the American economy and financeshave imposed to the life of your country. 4. The assistance that your country has offered to mine, brings nearer the fulfillment of my Government's wish for 8 more effective and real communion of interests and a closer solidarity between the United States and Brazil. 5. When I visited the United States, in the summer of 1937, we considered the possibility of making a gold de- posit with the Federal Reserve Bank, utilizing the currency available in the foreign market and carrying out crédit ope- rations on the basis of that deposit, as agreed. 6. The world's economic conditions, on the second half of last year, which influenced the Brazilian economy, and became worse as a consequence of the exchange policy followed Regraded Unclassified - 2 - 30 followed during my absence, prevented the completion of our program and compelled us, in order to avoid greater losses, to reestablish the exchange control. 7. In November 1937, due to the attitude of the various producing countries, we modified our coffee policy, reducing, in this manner, the surplus of our trade balance to the extent of the difference of the gold price. This compell- ed us to temporarily suspend the payments on our foreign debts. 8, Since last May, this exchange policy has shown its results and, from then on, we have had surpluses in our trade balance, notwithstanding the fact that the figures given in the statistics, during periods of exchange control, always shows results below the reality, as result of fraud, which cannot be entirely avoided no matter how severe the control may be, 9. The facts show that we are approaching more and more the point where we will be able to reestablish the free exchange, although for this we might have to wait a little longer than desirable. To hasten such a solution, at the present time, would bring a fall on the value of the milreis and a still larger reduction of the purchasing power of Brazil. This, of course, would not only be against our own interests but against the common purpose we are endeavouring to reach - a greater development of trade between our two countries. 10. Once reestablished the situation that will allow us to give up the exchange control and return to the policy of free exchange, we will immediately create the Central Reserve Bank along the lines we have studied before, with the exclusive power to issue currency. 11. When a convenient external purchasing power, well adjusted to the economy of the country, has been obtained - through the equilibrium of the international balance of payments, during Regraded Unclassified during a more or less lengthy period of time, the Central Bank will maintain the stabilization of the exchange rates with regard to the principal currencies, using, for that pur- pose, an "equalization fund", which will be set up little by little, should it be impossible to organize it in any other way. 12. The fundamental condition for the success of this monetary policy is B balanced budget, against which the requirements for the economic development as well as those of the national defense press constantly upon. 13. The Government has just ordered a study in each of its branches of all the public requirements to be taken care of, which were listed to be carried out along the lines of a well ordered plan to be organized in accordance with our possibilities. 14. The promptness with which we will be able to take care of such requirements will allow us, in some way, to reach successfully the aims we have in view and, therefore, the cooperation of your country in that way will be highly valuable, facilitating the execution of a program that will assure the expansion of our economic forces. Only through such cooperation we will be able to take care of our other requirements, including the commitments of the past. 15, The purchase of all the economic equipment we need to solve our problems of land and sea transportation, if made on the American market, on long terms, would allow us to consider immediately, as a whole, those we need most, 16. I do not find it necessary to emphasize the high significance that it would mean to us the possibility to assure, within a short period, the development of the national production. 17. The possibility of meeting our immediate require- ments through 8 financing plan for the sales of material, which would be within our capacity to pay, would practically assure Regraded Unclassified 32 assure a balanced budget. 18. The sstablishment of a Central Bank allowing the continuation of the monetary policy and the defense of the value of the currency, would place Brazil in an economic position which could easily be safeguarded, in line with the international policy of your country. 19. The diversity of situation in which we find ourselves compels my country to look for, by other means, the resources which we lack and must obtain, even though by so doing we are sometimes obliged to forsake principles which are in accordance with our traditions and our habits, but are not suited to the require- ments that confront us. 20. The fulfillment of the requirements we have mention- ed, carried out methodically, within the real possibilities of our budget, and the creation of a Central Bank for the execution of a monetary policy that will be able to give a relative stabili- ty to the purchasing power of the milreis, not only in the intern- al but also in the international markets, constitute the principal aims of our financial and sconomical policy. 21. The collaboration that the Government of your coun- try offers to us 1s, therefore, highly opportune and can decidedly contribute to the success of our purposes. 22. The policy that, since November 1937, has been followed with regard to coffee assures for that product a si- tuation which at least will secure for it stability of prices, and there is no reason to forecast a greater fall in its value. 23. On the same way, the imports of the country do not show EL tendency to increase, especially, if the purchases of economic equipment to be made by the Government will be granted by long term payments. 24. Therefore, only the relatively small arrears that exist in connection with the payment of imported merchandise - about £ 3,500.000 - would act as a lowering factor in the Regraded Unclassified in the event of it being immediately reestablished the free exchange market for the payment of imports. 25, If B. credit would be obtained, allowing such liquidation in a reasonable length of time, all difficulties for the normalization of the exchange market would be overcome, in which case the control would be maintained only in relation to the tranSfer of capital, interests and other remittences of non-commercial nature. 26, To be able to judge to what extent Brazil can take advantage of the cooperation you have offered us for the solution of the difficulties of other nature, - and as such we understand those related to the necessity of economic re- organization and national defense, - it is indispensable, in order to present any concrete suggestion, to know the maximum length of time which could be granted us for the purchase of such economic equipment. The proposals so far have been made by Belgian, and especially German producers, allowing us a term of not more than six years, which, evidently, would curtail very much our purchasing capacity. 27. The last proposal I received of e. financial nature, was from a group of Swiss bankers. It was forwarded to me by Senator Molard, President of the Commission of Public Works of the French Senate, who acted, however, in a strict personal character and without any interference from the French Government. 28. The plan was considered interesting and is under study by experts of my Department. The plan can be outlined as follows: a) Organization of 8 corporation having French- Brazilian capital, which would undertake to execute the in- dispensable public works having remunerative character. The capital for that purpose would be recruited abroad, the Brazil- ian Government being called upon to guarantee a minimum dividend Regraded Unclassified dividend to the shareholder. b) The opening of a credit in French francs for the sole purpose of permitting the creation of the Central Bank of Issue and promote the soundness and stability of the currency. 28. In connection with this plan, the Government would promote the nationalization of the external debts, re- placing the bonds in foreign currency by bonds in Brazilian currency, according to conditions to be agreed upon, 29. I must, in the first place, explain to you that this conversion is contrary to the impression that we always entertained that the agreement as to the debts ought to be made on the basis of the currency contracted for. 30. We recognize the great convenience of promoting immediately the necessary negotiations for this agreement but it looks to us that it can only be examined in an useful way for the mutual interest of the bondholders and my Government, after the solution of the two aforesaid problems. Once this problem is settled, the national increase of the export of our products will permit the carrying out of any reasonable scheme. 31. I have attempted to show to my distinguished colleague the outline of the difficulties which we have to face and the results which I have so far obtained, as well as the means through which the cooperation offered by your Government may be very useful to us, speeding the results and increasing our mutual relations both commercial and political. Awaiting confidently your reply and with my best personal regards, Sincerely yours, His Excellency Henry Morgenthau Jor., Secretary of the Treasury - Washington, D.C. Regraded Unclassified - THE SECRETARY OF COMMERCE WASHINGTON RX 35 of December 29, 1938 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: Here is the memorandum you spoke to me about yesterday. Very sincerely yours, My WH Secretary of Commerce A ecer at MAL to molatekI Two DEPARTMENT OF COMMERCE BUREAU OF FORDEN AND DOMESTIC COMMENCE WASHINGTON Arazil December 29, 1938. MEMORANDUM: To: Assistant Secretary Patterson. From: F. H. Rawls, Acting Director, Bureau of Foreign and Domestic Commerce. Subject: Economic Data Concerning Brazil for the General Information of Secretary Hopkins. Brazil is the largest South American country in area and population. In size it slightly exceeds that of the United States, not including Alaska. The population is estimated at approximately 45,000,000, of which 75 percent live in rural areas. The standard of living is low, and probably not more than 15 percent of the people are able to purchase anything beyond meager living necessities. Coffee has been Brazil's leading export product for approxi- mately a century. During the decade 1924-1933, coffee accounted for 71 percent of the total value of exports. Owing to the rise of cotton cultivation, the relative importance of coffee has trended downward for several years and in 1937 it accounted for only 42 percent of the total value of exports. Cotton was the second largest export in 1937, accounting for 19 percent of the total. Cacao is also an important item of export. In recent years Brazil has made a strong effort at diversi- fication both in agriculture and in industry. Manufacturing. is confined principally to the simpler types of consumer goods, but some headway has been made with quality articles and with heavy industry. The progress of diversification is of special interest on account of its effect on the character of the foreign trade and its distribution by countries. With the decline in the relative importance of coffee, the United States has taken a smaller proportion of Brazil's exports while Europe, particularly Germany, has taken a larger proportion. Nevertheless, the United States is still by far Brazil's best customer, taking 36 percent of her total exports in 1937. Germany was second with 17 percent. -2- 37 The United States was also in first place in Brazil's import trade from the time of the War down to 1936, when Germany took first rank by a slight margin, according to the official Brazilian statistics. Germany was also slightly in the lead in 1937. How- ever, if the Brazilian statistics are adjusted to allow for 8. 25 percent overvaluation of imports from Germany, the United States would be shown in first place for these two years. During the three years 1935-37, the average total value of Brasilian imports was $267,300,000, of which the United States furnished $61,100,000 (22.8 percent). The principal items in- volved in this trade are shown in the attached circular entitled "Trade of the United States with Brazil". The average value of Brazilian exports during the period 1935-37 was $312,300,000, of which $118,900,000 (38.1 percent) went to the United States. Thus exports to the United States ex- ceeded imports from us by $57,800,000. Brazil normally has a large surplus of exports, which pro- vides exchange to cover debt services, remittances of profits on foreign investments, etc. However, Brazil was in partial default on its foreign obligations down to November 1937 when all debt service was suspended. Remittances of profits and dividends have also been restricted through exchange control measures. Imports were unusually heavy during the first half of 1938, while the value of exports declined, reflecting the declining world market prices for Brazilian products, with the result that there was an import balance during the January-June period of $11,234,465. 77th F. H. Rawls, Acting Director. DEFARTMENT OF COMMERCE FFICE OF THE ASSISTANT SECRETARY WASHINGTON E el is the ansire m question sil. RIPP. EPARTMENT OF COMMERCE 38 BIREAU OF FOREIGN AND DOMESTIC COMMERER WASHINGTON December 29, 1938. MEMORANDUM: To: Assistant Secretary Patterson. From: F. H. Rawls, Acting Director, Bureau of Foreign and Domestic Commerce. Subject: What Brazil Needs from the United States. Brazil in recent years has been making a strong effort to achieve diversification of production through new crops and the promotion of manufacturing. Emphasis is also being placed upon the improvement of transportation and communication facilities, both as a means of bringing about & greater degree of national unity and for the purpose of opening up undeveloped resources. The Government has recently formulated a Five-Year Economic Plan, which calla for large outlays for communications equipment, industrial machinery, and other forms of capital goods. No official statement of the probable amounts of these goods which will be required has been issued by the Brazilian Government, but on the basis of estimates sppended it appears likely that upwards of $50,000,000 Faditional might be used to advantage during 1939. Principal capital goods needed are as follows: Railroad materials equipment and supplies $25,000,000 Industrial machinery 11,000,000 Iron and steel 4,000,000 Motor vehicles 2,500,000 Transport planes 1,000,000 Airport construction 2,000,000 Army planes 3,200,000 Total $48,700,000 Furthermore, if it were possible to regain even part of our lost markets in Brazil for wheat, coal, office appliances and many other goods, a very considerable increase in trade would result. Detailed information is appended. Regraded Unclassified 39 RAILWAY EQUIPMENT Brazil has long been one of our leading foreign markets for railway equipment. During the 25-year period 1910-1934, about 38 percent of Brazil's total imports of railway equipment came from the United States. The Five-Year Economic Plan puts particular emphasis on the improvement of transportation and communication facilities. In an area larger than the United States, Brazil has only about 21,000 miles of railways and present facilities are in- adequate to handle the demands made upon them. It is estimated that approximately $25,000,000 is needed in the immediate future for the purchase of locomotives, rolling stock and construction materials. This estimate does not include labor costs, which it is assumed would be met by the Brazilian Government. Furthermore, the figures relate only to the needs for rehabilitating the present net. New construction designed to tap undeveloped resources, particularly iron, manganese, nickel and other mineral deposits, would involve expenditures of far greater magnitude. INDUSTRIAL MACHINERY Brazil's imports of industrial machinery from the United States have been greatly reduced in recent years by the diversion of orders to Germany - this despite the fact that the United States is the logical supplier by reason of world leadership in technology of the equipment Involved. If exchange were readily available this business which has averaged approximately $4,800,000 in recent years, should rise to at least $7,500,000 annually. In addition to this current business, Brazil has need of additional equipment for the economic development of the country, for which capital is now lacking. Purchases from the United States for these purposes might be approximately as follows: Road building machinery $ 2,000,000 Construction, pumping and other equipment for irrigation program 3,000,000 Mining machinery for developing Itabira iron ore deposits 2,500,000 Vegetable oil extracting and processing machinery 1,000,000 $ 8,500,000 Total machinery needs to be furnished by the United States $16,000,000, a net increase of $11,200,000. + 40 RON AND STEEL PRODUCTS Consumption of iron and steel has shown an upward trend for some years, owing to its greater use in connection with building construction and to the demand from numerous secondary metal- working industries which have sprung up in recent years. Domestic production of pig iron, steel and rolled goods is also expanding, but local plants are able to supply only a part of the total demand. Imports of the major items of iron and steel in 1937 amounted in value to about $40,000,000, of which the United States furnished approximately one-fourth. The inauguration of extensive economic developments would entail an additional demand for approximately $4,000,000 of iron and steel products which the United States is in a position to supply. MOTOR VEHICLES Brazil has steadily increased its purchases of American motor vehicles since the low point reached in 1932, but American participa- tion in the Brazilian markets has declined continuously from 98 per cent in 1934 to 87 percent in the first 9 months of 1938. In 1938 these purchases will approximate only 30 percent of the 1929 peak. More automotive highway transport equipment is a pressing need in Brazil and this need will be supplied practically 100 percent from the United States providing means can be found to overcome German trade practices. Under these conditions, we might expect the following increased American automotive business in Brazil during 1939 as measured against our 1938 volume: Number Value Passenger cars 1,000 8 590,000 Trucks and busses 700 390,000 Assembly parts 500,000 Total $1,480,000 The automotive replacement parta and accessory business would presumably show a proportionate advance, possibly by $1,000,000, because this class of business has been seriously affected by fluctuating exchange rates and the delays in effecting dollar settlements. ERONAUTICAL EQUIPMENT Because of the time and expense involved in providing more ex- tensive access to the Brazilian hinterland by land transport, aviation development is also a matter of prime consideration to the Brazilian Government, as a part of its program of national unification. For some time there has been under consideration a supplementary air transport network which would be operated by the Brazilian army. It is well known that American planes are preferred for these proposed Regraded Unclassified + 41 operations. Our estimate of the Brazilian requirements for American transport planes for this purpose are: Year under 12 to over 25- Total Approximate 12-place 25 place place total cost 1939 17 5 2 24 $ 1,000,000 1940 20 6 2 28 1,100,000 1941 34 4 2 40 1,250,000 To make possible this more extensive and efficient operation of schedule transport services considerable airport construction (by American engineers), end airport-sirways equipment (lights, hangars, radio aids to flying, etc.) would be needed. Such American services and materials as could be used for these purposes might cost about $2,000,000 annually. It is believed that Brasil would like to modernize, with American flying squipment, her army air corps just as Argentina has done recently. Were American credits available to finance government military purchases, there is little question but that all of the business would go to American suppliers. However, because of easier terms and the possibility of dealing on a barter basis, an important part of Brazil's military plane requirements is now covered in Germany. There follows an estimate of Brazil's military aircraft needs: Year Training Other Total Approximate total cost 1939 80 60 140 $ 3,200,000 1940 90 110 200 5,300,000 1941 60 180 240 7,800,000 Civil aircraft, other than transport planes, which it is estimated Brazilians would buy, preferably from American sources, if dollar ex- change were readily available at E satisfactory rate, and convenient credit terms could be arranged, are calculated as follows: Year 4-place 5 to 10 Over 10- Total Approximate or over place place total cost 1939 12 - 12 $ 60,000 1940 18 2 20 140,000 1941 12 10 2 24 350,000 COAL Brazil currently consumes around 2 to 2½ million tons of bituminous coal, of which 2/3 is imported. In 1926 the greater part of these imports were American coal worth about $10,000,000. In 1937 our coal exports to Brazil were approximately 190,000 tons, valued at $900,000, while the bulk of the trade was divided about equally between Great Britain and Germany. Although considerable British capital is in- vested in railways, gas plants and electric power plants in Brazil, there are other public utilities, the State railways and Federal shipping lines which might be buyers of American coal under favorable conditions. Regraded Unclassified -5- 42 CONSUMER GOODS Although Brazil's principal requirements for United States merchandise are in the capital goods field, particularly in connection with the development of the country's vast resources, there are 8 number of instances in which the present competitive situation regarding consumer goods deserves special consideration. An important example 1s the market for breadstuffs, which is one of the largest items of Brazil!s Import trade. Only 13 per cent of Brazilian consumption of wheat and wheat flour is supplied by domestic production. Most of our market from Rio de Janeiro south was lost to Argentina before the World War, but American flour (and to some extent wheat) was preferred in the northeastern states prior to 1931. In 1926 Brazil's imports of breadstuffs from the United States amounted to over $18,000,000. Since that year Brazil has developed its milling industry, and Argentina wheat has largely replaced American flour. Brazil normally sells considerably more to the United States then it buys from this country. This export surplus enables Brazil to buy its breadstuffs elsewbere, principally in Argentina. On the other hand, Argentina normelly buys more from the United States than it sells to this country. Recently, Argentine has been in- sisting upon a policy of bilateral-balancing, that is, that imports from the United States must not exceed in value its exports to the United States; and restrictions have been placed on imports from the United States. However, Argentina has an export balance in its trade with Brazil, owing to large sales of wheat. Argentine should not expect "to have its cake and eat it, too". Unless it is willing to admit United States' goods in excess of U. S. purchases in that country, it cannot consistently demand that Brazil buy Argentine breadstuffs in preference to American wheat or flour. The market for office machines also deserves special considera- tion. Prior to the onset of subsidized German exporting, the United States supplied 80 percent of the Brazilian market for office machines, but this proportion has subsequently declined to around 50 percent. Brazil's annual requirements average about $4,000,000, of which the normal share of the United States is $3,000,000. Under normal competitive conditions the United States could also increase its share of the Brazilian market for scientific instruments, photographic and projection goods, and miscellaneous specialties - markets, which, in the aggregate, amount to about $6,000,000. 43 TRADE OF THE UNITED STATES WITH BRAZIL MILLIONS OF DOLLARS (Logarithmic Scale) 300 200 GENERAL IMPORTS 100 90 80 TO 60 50 40 30 EXPORTS, INCLUDING REEXPORTS 20 10 1901-1905 1906-1910 1911-1915 1916-1920 1921-1925 1926-1950 1931-1935 1936-1940 203140 Note - 1937 data are preliminary and subject to revision. Prepared by DIVISION OF FOREIGN TRADE STATISTICS and LATIN AMERICAN SECTION of DIVISION OF REGIONAL INFORMATION BUREAU OF FOREIGN AND DOMESTIC COMMERCE DEPARTMENT OF COMMERCE Washington, D.O. UNITED STATES TRADE WITH BRAZIL IN 1937 44 There has been a steady climb in the value of United States trade with Brasil since 1933, the advance being more pronounced in exports than in imports. At the same time, the position of Brazil among the various world markets for American products has risen from 1.8 percent of our total exports in 1933 to 2.1 percent in 1937. United States imports from Brazil, on the other hand, have receded, in their relative position in our world imports, from 5.7 percent of total imports in 1933 to 3.9 percent in 1937. Exports United States exports to Brazil in 1937 were valued at $68,631,000, an advance of 131 percent over the $29,728,000 valu- ation for the depression year 1933. The growth in these four years reflects the steady betterment which has taken place in Brasilian economic conditions, and the improved buying power of the people. Expansion was especially marked in 1937, when, according to United States statistics of exports by months, there was a steady increase in shipments to Brazil, from $4,162,000 in January to $7,879,000 in December. Although competition in the Brazilian market for certain Amer- icen goods continued severe during 1937, purchases by Brazil in the United States were facilitated during most of the year by the avail- ability of sufficient exchange for the payment thereof. Strict exchange control was reestablished in December. Compared with the pre-depression year 1929, United States exports to Brazil of finished manufactures, which constitute over 80 percent of the total trade, declined in value from $88,254,000 to $55,112,000 in 1937, but there was a considerable revival in shipments of products in this category in 1937 as compared to 1936, the total value rising by $14,526,000. Exports of some kinds of finished manufactures to Brasil have been adversely affected by that country's increasing production of goods of common consumption. and by the trend toward importation of seal- manufactures and crude materials for further elaboration within the country. This is reflected in the fact that semi-manufactures constituted 14.5 percent of United States exports to Brasil in 1937 as against 10.6 percent in 1929. Owing principally to the decline in flour shipments, the menufactured foodstuffs group amounted to only 1.1 percent of the whole in 1937 as compared to 5.8 percent in 1929. 7113 Regraded Unclassified 45 Trade in Many Export Commodities Rose in 1937 Machinery and vehicles constitute the largest single group in United States exports to Brasil. These items amounted to $33,112,000 in 1937, as compared with $24,123,000 in 1936, a gain of 37.3 percent. A little over two-fifths of this group was com- posed of automobiles and parts and accessories. Agricultural machinery and radio apparatus likewise showed an important gain in this period, the former from $840,000 to $1,452,000, and the latter from $2,023,000 to $2,503,000. Aircraft and parte increased in value from $651,000 in 1936 to $1,655,000 in 1937. Exports of petroleum products and coal increased, in response to the enlarged demand for industrial fuel. Exports of oil-mill machinery rose from $79,000 in 1936 to $323,000 in 1937, and exports of cotton gine continued large, being over $600,000 in both years. On the other hand, exports of American textile machinery declined in value, from $699,000 in 1936 to $280,000 in 1937, and there WSS also a drop in our shipments of generators and parts. Most other items in the group of electrical machinery and apparatus recorded gains. Shipments of metals and manufactures (excluding machinery and vehicles) including such important items as timplate, terneplate, and taggers' tin, wire and manufactures, railway track material, iron and steel sheets, plates, bare and rods, and tubular products, increased in value from $7,148,000 in 1936 to $11,834,000 in 1937. Imports The character of United States imports from Brazil has under- gone a considerable change since pre-depression years. In 1929, crude foodstuffs represented 90.7 percent of the whole, whereas in 1937 they made up 73.3 percent. On the other hand, the rela- tive position of crude materials rose from 8,7 percent to 21.7 percent, and of manufactured foodstuffs from 0.3 percent to 3.3 percent. The principal factor in this change has been the lower prevailing prices for coffee, which has continued to be shipped to the United States in approximately the same volume as & decade ago (the five year average, 1926-30, was 1,000,000,000 pounds, as compared with an average of 955,000,000 pounds for 1936 and 1937), but the valuation has declined from $168,029,000 in the earlier period to $68,394,000 for the later. In contrast, & number of items classed as manufactured foodstuffs, such as canned meats, cottonseed oil, and bran, have risen sharply, both in volume and value. The notable increase in importance of crude materials indicated has been featured by larger imports from Brasil of such products as castor beans, cattle bides, babassu and other palm nuts and kernels, carnauba wax, raw cotton, cabinet wood, and manganess ore. 7113 -3- 46 Imports from Brasil in 1937 on & Higher Level than in 1936 In comparing the trade in Brazilian products in 1937 with 1936, it is seen that coffee, which constitutes approximately three-fifths of the total, declined in volume from 1,035,000,000 pounds in the earlier year to 876,000,000 pounds in the later period, but that improved prices carried the aggregate value from $66,210,000 to $70,578,000. A similar situation existed with re- gard to certain other vegetable food products and beverages. such as cocoa and Brazil nuts, both of which declined in volume but in- creased in value. Among inedible vegetable products (excluding fibers and wood), which in value made up 13 percent of all imports for consumption from Brasil, crude rubber registered an outstanding gain, increasing in volume from 8,972,000 pounds to 12,866,000 pounds. and in value from $1,298,000 to $2,314,000. 011 nute and kernels benefited from improved market prices despite a lower vol- use of shipments to this market in 1937, as compared with 1936 of such outstanding items as castor beens and babassu nuts and kernels. Our imports of inedible animal products, 88 percent of which are made up of hides and skins, rose in value from $6,764,000 in 1936 to $8,868,000 in 1937. 7113 47 UNITED STATES EXPORTS TO AND IMPORTS FROM BRAZIL, 1911-1937 (Value in thousands of dollars) : : : Exports, includ- 1 General Imports : ing Reexports I : I # I : I : Percent : : Percent I Free of Duty Tear I I of Tot- I : of Tot- = 1 Value I al U.S. I Value 2 al U.S. : I 1 a Exports & I Imports 1 Value a Percent : I I : : : 1911 28,854 1.4 103,464 6.8 102,149 98.7 1912 40,692 1.7 132,957 7.3 132,767 99.9 1913 39,901 1.6 100,948 5.6 100,889 99.9 1914 23,276 1.1 95,001 5.3 93,146 98.0 1916 33,953 1.0 120,099 6.8 117,377 97.7 1916 47,669 .9 132,067 5.5 128,708 97.5 1917 66,158 1.1 145,275 4.9 138,500 95.3 1918 57,391 .9 98,038 3.2 93,740 95.6 1919 114,696 1.4 233,571 6.0 225,724 96,6 1920 166,740 1.9 227,588 4.3 199,269 87.6 1921 58,106 1,3 96,326 3.8 92,596 96.1 1922 43,247 1.1 120,383 3.9 116,938 97.1 1923 45,584 1.1 143,234 3.8 136,715 95.4 1924 65,207 1.4 179,337 5.0 174,174 97.1 1925 87,461 1,8 221,572 5.2 214,838 97.0 1926 95,449 2.0 235,307 5.3 228,172 97.0 1927 88,737 1,8 203,027 4.9 198,179 97,6 1928 100,104 2.0 220,701 6.4 217,054 98.3 1929 108,787 2.1 207,686 4.7 203,184 97.8 1930 53,809 1.4 130,854 4,3 126,974 97.0 1931 28,679 1,2 110,212 5,2 105,982 96.2 1932 28,600 1.8 82,139 6.2 80,060 97.5 1933 29,728 1.8 82,628 5.7 79,669 96.3 1934 40,375 1,9 91,484 5,5 87,823 96.0 1935 43,618 1,9 99,685 4.9 90,967 91.3 1936 49,019 2.0 102,004 4.2 90,767 89.0 1937 68,631 2.1 120,639 3.9 104,963 87.0 7113 -b- MONTHLY TRAIN OF THE UNITED STATES WITH 48 BRAZIL, 1935-1937 (Thousands of dollars) 1 $ Month # Exports, including Reemports : General Imports 1 I I 1935 1936 1937 1 1935 1936 1937 January 3,551 3,950 4,162 8,166 8,626 11,651 February 3,534 4,213 3,977 9,249 10,781 10,999 March 4,125 4,108 5,319 8,698 9,469 10,545 April 4,026 3,704 4,770 7,610 7,186 10,003 May 3,158 4,475 5,927 7,954 5,923 8,181 June 3,474 3,757 4,764 6,310 6,950 10,642 July 3,733 3,560 5,947 8,620 7,241 9,694 August 3,596 3,557 5,627 7,527 7,682 10,799 September 3,196 3,568 5,697 8,028 9,465 10,478 October 3,414 5,033 7,747 9,557 8,768 8,670 November 4,537 4,867 6,814 8,510 8,466 9,898 December 3,276 4,237 7,879 9,467 11,466 9,170 TOTAL 43,618 49,019 58,631 99,685 102,004 120,639 TRADE OF THE UNITED STATES WITH BRAZIL, BY ECONOMIC CLASSES, 1929 and 1937 (Values in thousands of dollars) 1 :Percent:Ratio 1/1 :Percent:Ratio 1 Class 2 1929 I of :Brasil I 1937 a of :Brasil # :Total sto Total: :Total sto Total EXPORTS (U. S. Mdse.) Total 108,503 100.0 2.1 68,271 100.0 2.1 Crude materials 1,226 1.1 .1 1,273 1.9 .a Crude foodstuffs 1,375 1.3 .6 1,274 1.9 1.3 Manufactured foodstuffs 6,287 5,8 1.3 746 1.1 .4 Semimanufactures 11,361 10.5 1,6 9,866 14.5 1.5 Finished manufactures 80,254 61.3 3,5 56,112 80.7 3.4 IMPORTS 3/ Total 207,686 100.0 4,7 119,627 100.0 4.0 Orude materials 18,027 8.7 1.2 25,928 21,7 2.7 Crude foodstuffs 188,396 90.7 36.0 87,644 73,3 21,2 Manufactured foodstuffs 577 .3 .1 3,980 3.3 .9 Semimanufactures 304 .1 4/ 1,394 1.2 .2 Finished manufactures 381 .2 583 .5 .1 Percent of United States total of each economic class exported to or imported from Brasil. Includes wines, spirite and other beverages. 3/ General imports, 1929, and "Imports for Consumption", 1937. Less than one-tenth of one percent. 7/15 -6- PRINCIPAL COMMODITIES AND GROUPS OF COMMODITIES IN EXPORTS 49 FROM THE UNITED STATES TO BRAZIL, 1936-1937 : : Value : Quantity : Commodity and Group (1,000 dollars) : : : : 1936 1937 1936 1937 I : Exports, including reexports, total --- --- 49,019 68,631 Vegetable food products and beverages, total --- -- 1,346 1,966 Oatmeal, groats and rolled oats 1,000 lb.. 1,282 839 136 93 Wheat 1,000 bu --- 356 --- 392 Wheat flour 1,000 bbl 69 69 345 431 Apples, fresh 1,000 bu.. 134 112 263 299 Grapes, fresh 1,000 lb., 1,185 1,830 95 136 Pears, fresh do 5,225 4,546 263 284 Walnuts do 828 1,004 71 98 Other vegetable food pro- ducts and beverages --- --- 174 233 Vegetable products, inedible, except fibers and wood, total --- --- 1,951 2,552 Automobile tires (casings) number 75,545 77,933 798 943 Automobile inner tubes do 43,690 54,483 63 85 Rosin bble 60,461 62,413 600 963 Other vegetable products, inedible --- --- 490 561 Textile fibers and manufactures, total --- --- 552 766 Corded tire fabric 1,000 sq.yd. 320 327 78 94 Silk tram, organzine and hard twiste 1b 24,134 38,667 67 122 Spun silk 1,000 lb. $ 42 112 133 Felt base floor coverings 1,000 sq.yd 241 286 68 77 Other textile fibere and manufactures --- --- 227 340 Wood and paper, total --- --- 445 931 Greaseproof and waterproof paper 1,000 1b., 155 296 54 131 Tissus and crepe paper do 1,085 2,951 66 229 Other wood and paper --- --- 325 571 7113 Regraded Unclassified -7- 50 : : Quantity Value a I Commodity and Group 2 : (1,000 dollars) : : 2. 1936 1937 1 1936 1937 Nonmetallic minerals, total i --- 8,954 11,891 Bituminous coal 1,000 tons. 98 188 454 908 Crude petroleum bbl 9,254 118,341 29 239 Gasoline and other petroleum motor fuel 1,000 bbl 1,157 1,403 3,601 4,736 Mineral spirits 1,000 gal 13 672 sa 111 Illuminating oil 1,000 bbl 501 442 2,050 2,303 Oss oil and distillate fuel oil do 51 69 105 161 Lubricating oil --- --- 1,660 2,270 Lubricating grosses 1,000 1b., 1,882 2,467 97 135 Paraffin vax do 2,271 2,334 85 87 Cement, Portland bbl 16,044 16,099 64 68 Other nonmetallic minerals --- - 737 883 Metals and manufactures, except machinery and vehicles, total --- --- 7,148 11,834 Iron and steel bare and rods 1,000 lb.. 3,050 8,433 90 304 Iron and steel plates do 2,426 12,457 55 369 Iron and stool sheets do 22,094 41,623 716 1,651 Timplate, terneplate and taggers' tin do 41,794 66,122 1,858 3,391 Structural iron and steel: Structural shapes tons 1,839 3,965 130 160 Plates, fabricated, punched or shaped 1,000 16.. $ 2,534 2 122 Railway track material: Bails tone 22,028 24,597 766 1,099 Bail joints, splice hars, fish-plates and tie- plates 1,000 lb., 3,982 6,878 101 255 Switches, froga and crossings do 842 1,544 63 121 Tubular products --- --- 193 323 Vire and manufactures 1,000 lb.. 29,294 31,081 702 1,138 Axes, broad and hand dos 19,457 28,253 123 192 Files and rasps 1,000 dos 166 207 221 207 Copper rods 1,000 1b. 9,461 3,369 854 469 Brass and bronse ! ! 82 211 Other metals and manufactures i --- 1,202 1,822 Machinery and vehicles. total --- -- 24,123 33,112 Electrical machinery and apparatus: Generators and parts i - 200 194 Transforming and converting apparatus - - 220 313 7113 Regraded Unclassified -8- 51 : : Value : Quantity : (1,000 dollars) Commodity and Group : I : 1 : 1936 1937 1936 1937 Machinery and vehicles - Continued. Electrical machinery and apparatus - Continued: Transmission and distri- bution apparatus --- --- 256 414 Motors, starters and con- trollers --- --- 306 467 Electric refrigerators and parts --- --- 1,191 1,235 Household number 11,520 12,291 894 971 Radio apparatus --- - 2,025 2,503 Telephone apparatus --- --- 374 440 Electric metal conduit outlets and switch boxes --- --- 87 146 Industrial machinery: Steam locomotives, parts and accessories --- --- 109 169 Construction and conveying machinery --- --- 540 759 Mining and quarrying machinery --- --- 199 210 Sheet and plate-metal working machines --- - 63 134 Textile machinery --- - 699 280 Sewing machines number 2,425 6,389 104 208 Sewing machine parts --- --- 195 194 Air-conditioning equipment --- --- 72 152 011-mill machinery --- --- 79 323 Cotton gins, presses and parts --- --- 663 632 Air compressors number 227 322 114 190 Office appliances: Accounting and calculating machines number 1,974 3,099 571 911 Cash registere do 1,466 2,657 162 324 Typewriters do 8,288 12,820 465 715 Printing and bookbinding machinery --- --- 321 529 Agricultural machinery. total --- --- 640 1,452 Horse and power plows number 8,446 13,040 114 222 Tractors do 246 434 383 668 Parts and accessories for tractors --- --- 76 1.34 Automobiles, parts and accessories, total --- --- 10,339 13,728 Motor trucks and busses number 5,904 6,757 2,983 3,653 Passenger automobiles do 5,815 7,540 3,328 4,440 Parts for assembly --- --- 2,108 2,681 7"3 Regraded Unclassified -9- 52 : : Value : Quantity : (1,000 dollars) Commodity and Group 1 : : 1936 1937 I 1936 1937 I : Automobiles, parts and accessories - Continued. Engines (motor truck, bus and passenger car) --- --- 510 984 Automobile service appliances .... --- --- 163 247 Aircraft and parts --- --- 551 1,655 Landplanes number. 13 44 84 B09 Railway car parts, except axles and wheels --- --- 714 809 Other machinery and vehicles ..... --- --- 2,420 3,779 Chemicals and related products, total --- --- 1,825 2,346 Coal tar colors, dyes and stains 1,000 lb.. 228 184 162 158 Hydroxide (caustic soda) ...do.... 16,353 16,908 303 279 Ready-mixed paints, stains and enamele 1,000 gal.. 101 123 186 215 Other chemicals and related products ! ! 1,174 1,694 Miscellaneous articles, total ...... --- --- 2,675 3,233 7113 -10- PRINCIPAL COMMODITIES AND GROUPS OF COMMODITIES IN IMPORTS INTO THE UNITED STATES FROM BRAZIL, 1936-1937 53 2 : Value a Quantity 1 (1,000 dollars) Commodity and Group 1 a a 1 1936 : 1937 a 1936 1937 Imports for Consumption, total --- --- 102,767 119,527 Animal products and animals, edible, total --- --- 135 1,048 Canned beef, including corned beef 1,000 lb., 1,243 9,786 92 942 Animal products and animals, inadible, total --- I 6,764 8,868 Hides and skins, total --- - 5,940 7,819 Cattle hides 1,000 pieces 459 465 1,793 2,484 Goat and kid akine do 4,699 4,661 2,582 3,008 Deer, buck or doe skine. do 292 328 323 485 Undressed fors --- I 194 318 Becowar, crude 1,000 lb.. 1,205 1,598 268 420 Other animal products and animale, inedible --- : 362 311 Vegetable food products and beverages, total --- --- 81,339 90,576 Bran, shorts and other by-product feeds tone 21,289 22,174 340 445 Brasil or cream nuts 1,000 lb.. 28,978 19,968 2,676 2,947 Cottonseed oil do 37,108 44,871 2,107 2,468 Cocoa or cacao beans do 196,168 184,601 9,620 13,905 Coffee million lb 1,035 876 66,210 70,578 Tonka beans 1,000 lb.. 395 293 234 197 Other vegetable food products and beverages I --- 152 36 Vegetable products, inedible, except fibers and wood, total --- I 11,817 15,471 Crude rubber 1,000 lb.. 8,972 12,866 1,298 2,314 Gutta balata do 847 677 141 132 Castor beans do 145,374 144,395 3,212 3,580 Palm nuts and palm nut kernels do 9,460 22,118 200 918 Babaseu nuts and kernels do 59,022 54,792 1,935 2,727 Carnauba wax do 12,465 13,911 4,278 4,800 Oiticia oil do 2,887 3,631 315 377 Rosewood oil do 112 174 120 202 Other vegetable products, inedible. --- i 318 421 9113 -11- : 1 54 Value I Quantity a (1,000 dollars) Commodity and Group : 1 : 1936 1937 : 1936 1937 I : extile fibers and manufactures, total --- --- 682 1,311 Cotton, raw 1,000 lb.. 368 4,787 62 740 Cotton linters do 8,901 6,771 394 329 Cotton waste do 3,123 2,318 141 99 Other taxtile fibers and manufactures ! --- 85 143 ood and paper, total --- i 270 311 Cabinet wood, sawed, mahogany M ft.. 1,935 2,236 124 169 onmetallic minerals, total --- I 453 703 Brasilian pebble. unmanu- factured 1,000 1b. 21 30 9 62 Mica, unmanufactured do 129 257 36 60 Diamonds, unset, and miners', glaziere' and engravers' carats. 28,964 118,165 387 560 etals and manufactures, except machinery and vehicles, total ...... ! --- 1,010 841 Tanks or vessels for holding gas. liquid or other materials number. 48,492 61,895 59 126 Manganese ore 1,000 lb. (manganese content) 117,073 79,532 872 597 Titanium ore, rutile 1,000 lb., 995 1,323 37 67 Other metale and manufactures ..... --- i 42 51 Dried blood tons. 558 1,368 24 80 11 other articles --- I 273 318 7H2 Regraded Unclassified 55 DEPARTMENT OF COMMERCE DANIEL C. ROPER, SECRETARY BUREAU OF FOREIGN AND DOMESTIC COMMERCE ALEXANDER V. DYE. DIRECTOR THE CHANGING CHARACTER OF AMERICAN EXPORTS TO BRAZIL SPECIAL CIRCULAR NO. 377 DIVISION OF REGIONAL INFORMATION CONSTIMENT OF COMMERCE * * DATED STATES of AMERICA JANUARY 1937 PRICE 5 CENTS 56 THE CHANGING CHARACTER OF AMERICAN EXPORTS TO BRAZIL Abridged from Special Report by Commercial Attache Ralph H. Ackerman Rio de Janeiro January 16, 1937. Note on currency: Conversions from contos of reis to dollars have been sade at the average annual exchange rates given in various annual reports of the Bank of Brazil, which are as follows: 1926, 78001; 1927, 6$457; 1928, B$363; 1929, B$478; 1930, 9$267; 1931, 148267; 1932, 148133; 1933, 123702; 1934, 12$078; and 1935, 17$364. In Table No. 1, for the years 1931-1935, the figures give ia recent issues of "Commercio Exterior" are shown for the total value in dollars of exports and imports; these figures differ slightly from the results obtained by con- verting the value in contos at the rates published by the Bank of Brazil. Introduction Some notable changes have occurred during the last decade in the character of United States' trade with Brazil, particularly in the nature and competitive position of exports to Brazil. As sany of these changes are the result of the influence of emergency measures taken by the Brazilian Government for the purpose of alleviating he depression, a review of Brazil's financial and commercial policies in recent years may first be given. These poli- cies will be discussed under be four headings: (1) Exchange control, (2) Taxation in- creases, (3) Diversification of agriculture. and (4) Treaties and Commercial arrangements. Exchange Control Most of the currency in circulation In Brazil has been inconvertible for sany years. Legislation enacted during 1926 provided for the accumulation of a Stabilization Fund Against which notes redeomable in gold would be issued to replace gradually the inconvertible notes then in circulation. By the end of 1929 this fund had reached a sum of approximately £30,000,000. representing about 45% cover for the notes in circulation. The rapid decline in world prices of Brazilian products and the curtailment of foreign credita, forced the Government to decide whether to permit its echange to decline rapidly or to support it by the use of its gold reserves, It adopted the latter course and by the early part of 1931 had entirely exhauated this reserve. To minimize exchange fluotuations and prevent & decline governed by speculative rather than economic factors, it decreed the creation of an official Exchange Control Office through which all exchange transactions passed. Until September 1934, all foreign exchange arising from exports, investments or other credits had to be sold to this Exchange Office-at rates fixed ily, which in turn made svailable for the payment of merchandise imports such exchange as exceeded the requirements of the Govern- ment. Restrictions wore relaxed.40 that month whereby merchandias imports were payable at 20639 Regraded Unclassified -2- rate for 40% of their value and 60% from exchange acquired in the open market, the Tunes for the open market being supplied from the excess values arising from exports beyond the sertain tipulated requirements of the exchange office. level In February related 1935. restric- were further relaxed 80 that the silreis might find A to supply and demond, and since that time importe are payable in foreign exchange acquired at open market Palms and only 30% of the proceeds arising from certain exports are acquired by the Exchange 3ffice at the offluial rate, to provide funda at a low rate of exchange for the service on external public dobt, and other Government Decessities. During the period when exchange for payments could only be secured by purchases from the Exchange Control Office, the DUES available were insufficient to cover demands, with the result that a substantial backlog of commercial credits was accumulated. In 1933, agreements were entered into with British, American and other creditors, whereby exchange for the liqui- of accupulated indebtedbess arising from serchandise imports was to be made available by monthly payments over a period of five years. There subsequently occurred a further Liockalle of commercial credits and additional agreements along the same general lines were entered into during 1936, By this control the Government checked violent fluctuations in the allross. prevented importo from expanding so rapidly as to bring about an adverse trade balance, and forced foreign suppliers to accord long term credits at a time when direct foreign borrowing vaz impossible. The from market value of the milreis has declined approximately 72% in relation to gold. or about 50 cents in relation to the dollar, i.e., it is now worth approximately 1. 06 as compared to approximately $0.12 cents in 1929. Since the establishment of the free market there has occurred an improvement in the sentiment of foreign suppliers, which has let to the resumption of tera credits to Brazilian purchasers Cash was demanded so long OF control over resittances remained in force. Texation increased To increase its revenues the Government found necessary to revise upward a number of 11a Las laws, which by 1935 had increased its income to the highest figure ever recorded Most important from the standpoint of effect on foreign commerce were the several re- of villons of cullome tariffs. After the decline of the milreis there was applied to that part the dulles collectible in gold a differential based on the extent These a payer new measures. currency fixed 1944 and 13110 there la to grant domentic xas gold NBS established additional pade in monufactoring substitution effective protection at approximately a or was new the sheltered to custom fixed certain 301 tariff ratio from above domestic formerly designed the industries. differential fluctuating applied. to increase Ao then Subsequently, value a Government result in of force. the of reason of than the nver before. which, coupled with the higher cost foreign of competition to a greater of PRINTING domestic decline in the international value of the milreis, imported merchandise by about a aubstitution industries and the establishment of new hastened the expansion pendence VB Coreign of domestic merchandise for foreign factories. This brought sources for certain articles At the same made time goods, it stimulated and decreased the demand de- 20630 Regraded Unclassified 57 for go-called "capital" goods, but the total importe of this type of merchandise did not roach the values of the decline in other lines. Diversification of Agriculture Fundemontal to en immediate or sustained recovery in Brazil is the solution of the 16- ricultural problem Depending largely on agriculture for its national wealth and almost entirely on the export of a few agricultural products for its foreign trade and income from which to maintain its international credit. national economy urged intervention on behalf of the farmer. Over-production of several crops, predominant in export trade at a time when other areas of the world were expanding output and offering increasing competition, failure to Improve production methods or marketing by rigid classification or standardization and faulty distribution, were recognized as obstacles to the expansion of markets, The coffee production of Brazil could supply the needs of the world, but the participation of other countries in the world's markets results in & heavy periodic surplus of Brazilian coffees which must be disposed of in such a manner as to prevent prices from declining below pro- duction and marketing costs. This led to an attempt to restrict new plantings and the de- cision to destroy surplus crops, through a regulating agency set up by the Government. The COCOA industry has felt the effect of increasing competition which led to the establishment of an Instituto which is attempting a more intelligent direction of planting, and to Assure uniform classifications, and reduce transportation, warebousing, and marketing costo. Thirty-rive years ago Brazil supplied most of the rubber consumed by the world, but today 11 contri- butes only a negligible perodatage of the enormous requirements, and nothing has been dona by the Government to remedy this situation. A. century ago Brazilian sugar was also án 15- partant commodity in international commerce. but while sugar case growing La still one of the most important industries, it is only since the formation of a Sugar and Alnohol In- stitute during 1933, under the patronage of the Government, that orderly marketing has provented disastrous price declines and permitted the export of a small amount of heavily subsidized augar. Several other associations of producers have been encouraged by the Fed- eral or State Governments, among which may be mentioned the Rice Institute, Herva Matte Institute. and the Meat Institute of Rio Grande do Sul, most of which have proved beneficial, Both the Federal Government and State Governments have given aid to planters in other directions, auch as by making available the results of studies conducted at experimental farms DO peet control, the distribution of seeds, and other propaganda material, This, coupled with the fall in coffee prices during 1929 and subsequent and only partial recovery of the coffee markets, and the cost to the producers of the various non- sures designed to arrest this decline and restore prices. turned the attention of agri- culturista to the possibilities of substituting for a part of the coffee crops other more profitable products. An A result there has occurred a substantial increase in diversifi- cation. The value of cotton production during recent years rivals the value of the coffee crup, the citrus fruit industry has reached significant proportions, rice culture has been steadily expanding, both the quality and quantity of COOOR are improving, and such cropase beans, corn, Data, barley, etc. continue to be produced in quantities sufficient to meet the steadily expanding domestic consumption. 20639 Regraded Unclassified While coffee La still the premier export crop, the base has been broadened by the grown 186 diversity of exportable commodities and dependence on coffee has been diminished. Treatien and Commercial Arrangements The trend toward national sufficiency which has led 50 many countries to erect barriers sgainst imports had a serious repercession on Brazilian exports. High duties and quota mystems not only impeded the movement of coffee, but were obstacles in the way of the de- velopment of markets for other Brazilian products. especially those which heretofore 002- tributed only B small proportion of Brazil's exports. The Brazilian Government has con- sistently negotiated to assure adequate quotas for its products and has opened larger markets in some countries in return for concessions it has been willing to grant. In order to it- lease credits blocked in Brazil, some countries agreed to increase imports of Brazilian 002- modities over à stated period: increased import quotas were secured from others on Brazil's insistence for most-favored-nation treatment. The fact that most of Brazil's exports are raw materials or materials essential to the requirements of other nations has favored this type of negotiation and has permitted Brazil to find ready acceptance for its surplus output. Domestic Purchasing Power In addition to the measures above set forth, the Federal Government and State Govern- sents have opened a broader field for their internal securities and by according greater credit facilities to industries through extension of the rediscount department of the Bank of Brazil have sade it possible to stimulate domestic production of industrial and agricul- tural goods. Apparently the present internal purchasing power of the country is as high 55 it has been in any recent year. In 1928 the estimated value of leading agricultural products - coffee, cereais, neat. dairy products. sugar, fruits, rice, beans, cotton, lumber, tobacco, - was 10,634,000 contos (the annual average value of the five years 1926-30 was 8,040,000 contos), of which the value of the bumper coffee crop of that year accounted for 4,450,000 contos, As, in fact, a substantial part of that crop vas carried over into subsequent years and eventually destroyed, it is doubtful whether two-thirds of the estimated value was realized. In 1935. the estimated value of the same leading crops was 9,355,000 contoo, but of this the value placed on the coffee crop was only 1,320,000 contos of which a very small percentage was destroyed. Mining activities during 1935 were much more extensive than during 1928, as is shown by the fact that coal output increased by 130%. pig iron by 120%. and cement by 300%. The value ot the output of the seven leading mineral products industrial diamonds, diamonds, coal, pig iron. manganess, gold and salt was 190,000 contos, compared with 104,000 contos in 1928, or these items it in known that the astimates of gold production in 1935 were lower than actual output, as they were based on official sales of gold and there has been a great by the Government. deal of clandestine disposal of gold to avoid the necessity of selling at the prices fixed The full extent of the expansion in manufacturing is not shown by the available sta- tistical material Using the data issued by the State of Sao Paulo which embraces approxi- mately 70% of the total manufactured output of the country, it would appear that the value 20639 Regraded Unclassifi 58 + in 1935 for the country as a whole exceeded the 1928 value by approximately 10% In spite of the lower average prices of raw materials. The consumption of electric energy has also shown an increase. The two largest public utility groups estimated consumption for industrial purposes and private lighting during 1935 as at least 15% greater than during 1928. Coastwise tonnage increased from 1,899,000 toos during 1928 to 2,180,000 tons during 1935. The distribution of purchasing power is also greater today than at any time during pre- depression years. While the large coffee growers have been suffering from lower prices and a heavy burden of taxation made necessary to dispose of excess output, and their total earn- ings are less than when coffee was selling at pre-depression prices, this has caused many "frazendeiros" to turn to other agricultural crops so as to augment income. As markets have been found for other crops which lend themselves to the economy of emaller farmers there has occurred a transition from large absentee ownership to seall operating farmers. This is clearly evident from the fact that in the State of Sao Paulo of the 274,740 agricultural proprietors listed, 106,572 have farms of less than 5 "alqueires" (approximately 31 1/4 acres). 70,400 of from 5 to 10 "alqueires" (31 1/4 to 62 1/2 acres), and 49,253 of from 25 to 50 "alqueires" (156 1/4 to 312 1/2 acres). It is stated that as late as 1931, large proprietors of the State of Sao Paulo represented 51% of the total cultivated land, whereas the 1934 census showed large proprietors controlled less than 10%. It say also be pointed out that the cost to Brazil of its import purchases and serv- ice on its foreign debt was not greater during 1935 in terms of Brazilian currency than dur- ing 1928. From exports there was received a larger amount of Brazilian contos than during any immediate pre-depression year. and while imports also cost more the net balance favorable to Brazil from its visible trade was approximately the same as during the year 1928, when both exports and imports reached the pre-depression peak. By the operation of the 1933 foreign debt partial payment plan the cost of this service and amortization was reduced ao materially that it required a smaller amount of Brazilian currency during 1935 than during the aforementioned year. On the other hand, by the growth of manufacturing industries there is a greater amount of employment for labor. Both agricultural and industrial labor and employees of the white- oollar class are now receiving higher wages than ever before, whereas living costs for the Brazilian family in the larger industrial cities were at approximately the same levels during 1935 as during 1928, when living costs were highest. Brazil's Foreign Trade During the 10 years prior to 1930 there was a steady increase in Brazil's total foreign trade. and the balance of trade was constantly active. The peak of this movement was reached during the 5-year period 1926-30, when the average annual value of exports attained the sum of $427,000,000 and imports reached $379,000,000. The year 1930 was well advanced before the full effects of the dislocation of world's markets became apparent; during that year the volume of exports reached new high figures although price recessions reduced the value of the shipments to a figure below that of the proceding year. During 1931 the decline became accentuated, but it was not until 1932 that Brazil's foreign commerce fell to its Regraded Unclassified Since then recovery has been rapid and by 1935 the although volume values, of exports in 02- lowest Levels. of any previous year in the history of the country. the 1926-30 period. terms coeded that amounted to only two-thirds of the annual average of this has been In- of dollars, have also mounted steadily nince the low point in 1932. although preceding the at & ports and the volume is still well below any of the five years it is evident depres- glower pacé From the adjoining table of exports and imports (300 Table 1) trade that Brazil sion. is not suffering from B contraction of export markets: Its foreign balance in terms of foreign currencies is less favorable solely from the fact that prices for those commodities which enter its external trado have fallon more sharply than the level of the cost of commodities imported. During 1928 the per ton value of exports was approximately $227.00 whereas in 1935 the per ton value was $97.00. Import values on the other hand, which in 1928 amounted to an average of $75.00 por 10A. had only declined to approximately $53.00 per (on. Table No. 1. BRAZILIAN EXPORTS AND IMPORTS - 1926-1935 EXPORTS IMPORTS Metric Values in Values in Values in Values in Values in Tons Contoa Dollars Tons Contos Dollars Years 1926 1,858,000 3,109,559 $444,159,000 4,947,000 2,705.553 $386,452,400 1927 2,017,000 3,644,118 430,899,600 5,520,000 3,273,163 387,035,900 1928 2,075,000 3,070,273 474,742,700 5,839,000 3,694,990 441,826,000 1929 2,189,000 3,860,482 455,352,900 6,109,000 3,527.738 416,105,000 1930 2,274,000 2.907,354 313,731,900 4,881,000 2,343,205 252,854,800 1931 2,236,062 3,398,164 240,590.783 3,476,161 1,880,934 139,508,695 1932 1,632,265 2,536.765 178,255,293 3.254,393 1,518,694 105,818,626 1933 1,910,772 2,820,271 223,126,808 3,837,526 2,165,254 169,861,596 1934 2,184,782 3,459,006 286.607,114 3,845,718 2,502,785 207.737.755 1935 2,761,752 4,104.008 269,374,615 4,229,269 3,855,917 224,795,657 for many years the United States has been the Largest purchaser of Brazilian products, with Cersany or France following La second or third position. In 1934 and 1935 exports to Germany increased, placing the country definitely in second place, and Great Britain replaced France as the third largest purchaser. Until 1934 the United States usa the unchallenged leading supplier of Brazil's import requirements, Great Britain normally ranking second and Germany third. During 1934 and 1935 Germany improved its position substantially, overtaking Great Britain during the latter year and supplying almost as much as the United States. Figures on the trade of the first nine months of 1936 disclose that the value of German sales to Brazil were 1% larger than American sales, In the adjoining table is shown the participation of various countries in Brazil's foreign trade for the years since 1926. (See Table 2) 20639 Regraded Unclassifi -7- Table No. 2. PERCENTAGES OF BRAZILIAN FOREIGN TRADE % of Total : of Total Exports to Imports from Great Great Years U.S. Germany France Britain Argentina Belgium U.S. Cormany France Britain Argentina Belgium 1926 47.9 8.4 8.8 3.4 6.3 2.4 29.2 12.7 6.3 19.0 9.9 4.3 1927 46.2 10.4 9.6 3.4 6.0 2.8 28.7 10.6 6.3 21.2 11.9 4.1 1928 45.5 11.2 9.2 3.4 5.9 2.7 26.6 12.5 6.4 21.5 11.5 3.9 1929 42.2 8.8 11.1 6.5 6.4 2.8 30.1 12.7 5.3 19,2 10.9 4.5 1930 40.4 9.1 9.2 8.3 6.8 3.1 24.2 11.3 5.0 19.4 13.4 3,9 1931 43.6 9.2 9.3 7.2 5.9 2.9 25.0 10.5 4.7 17.5 14.6 3.3 1932 45.8 8.9 8.9 7.0 6.0 2.6 30.2 9.0 5.1 19.2 7.4 4.0 8.1 9.1 7.5 5.2 2.8 21.2 12.0 5.1 19.4 12.7 5.3 1933 46.7 1934 39.1 13.1 7.1 12.1 4.7 3.4 23.7 14.0 3.6 17.1 12.4 5.8 1935 39.4 16.5 8.1 9.3 4.9 3.3 23.4 20.4 3.4 12.4 12.9 5.8 1st 9 months 1936 36.9 12.5 22.0 23.0 Note: The above percentages are based on values in E gold. except those for 1936, which are based on Brazilian currency. Sources: 1926-30 Commercio Exterior do Brasil, Ed.1933; 1931-35 Commercio Exterior do Brasil, Sum- mary Ed. 1935 - No. 12-A. 0639 59 Regraded Unclassifie American-Brazilian Trade decline in the gold value of Brazil's exports in clearly illustrated by the trade The the United States. From shipments to the Daited States during 1935 the Brazilian 03- with received approximately the sase number of milrois as from his shipments during 1926, but porter exports in 1935 provided only $93,000,000 in foreign exchange. as compared with $210,- 000,000 in 1926 The volume of Brazilian products purchased by the United States was greater in 1935 than in 1926, as will be been from Table No. 3. although seanwhile the share of Brazil's total imports (on a value basis) taken by the United States declined from 47.9 percent to 39.4 percent. Table No. 3. BRAZILIAN EXPORTS TO THE UNITED STSTES 1926 1935 Value in Value in Kilos Contos Kilos Contos Cocoa 40,418,019 68,345 75,783,667 110,213 (bage) (bage) Coffee 7,466,336 1,304,810 8,684,327 1,244,259 (Kilos) (Kilos) Rubber 12,511,121 57,929 5,303,485 14,455 Carnauba Wax 2,196,818 9,036 4,194,745 30,070 Castor seed 4.434,780 2,793 35,240,075 21,735 Brazil duta 18,512,525 17,457 9,155,674 14,302 (tone) (tons) Manganese 292,187 23,059 26,695 2,958 TOTAL 1,483,429 1,438,892 Although a comparative classification of Brazilian exports to the United States is not available for the early part of 1936, the percentage of the total declined to 36.0% for the first 9 months of the year. That the United States has continued to absorb such & large part of Brazilian exports is especially remarkable when consideration is given to the faot that it takes practically no cotton which le now the second most valuable export commodity, little of the large shipments of cotton seed or fresh fruits, items which represented an insignificant percentage of the exports of 1926. Contrasted with this situation in the fact that the volume of Brazilian imports from the United States during 1935 vas much less than during 1926, and there has occurred a noticeable decline in the participation of American merchandise in the Brazilian market. 29.21 The $113,000,000 worth of goods imported from the United States during 1926 represented of Brazil's total imports, whereas the $51,700,000 worth imported during 1935 by Brazil States represented only 23.4% of its total imports. During the first 9 months of 1936, the United supplied 22.0% of the total. an imports from the United States: In the following table there are shown the year to year changes in the value of Brazili- 20639 Regraded Unclassifi 60 Table No. 4. BRAZILIAN TRADE BITH THE UNITED STATES EXPORTS IMPORTS YEARS Values in Valves in Contos Dollars Contos Dollars 1926 1,526,390 $218,024,600 793,807 $113,385,000 1927 1,683,813 199,102,900 939,072 111,041,000 1928 1,804,442 215,763,000 981,710 117,387,400 1929 1,629,807 192,239,600 1,063,100 125,396,000 1930 1,179,421 127,271,100 566,184 61,096,800 1931 1,487,733 104,210,650 472,436 33,113,900 1932 1,173,129 83,066,400 456,912 32,329,400 1933 1,309,569 103,100,000 455,400 35,853,000 1934 1,347,168 111,501,640 590,901 48,923,800 1935 1,616,885 93,117,000 897,587 51,692,500 The various measures of the Brazilian Government to protect its exchange position and encourage greater self-sufficiency had an adverse effect on the market for American goods and the loss in trade in some items was not compensated by increased sales of other ar- tioles. but an even greater loss has occurred 48 a result of competition from countries which will only purchase from Brazil to the extent of their sales to Brazil. Brazil's imports from the United States have not only shrunk in value, out also in the range of goods purchased. In the following paragraphe an attempt has been made to point out the causes of such changes as have occurred and the future marketing possibilities for American made goods in the different commodities. (See Statistical Anner for detailed figures showing imports by countries of the principal items of interest to United States exporters) Apricultural Implements and Equipment The use of agricultural equipment and machinery in Brazil is surprisingly small for 9 scuntry having such a large output of agricultural products and such vast potential re- sources. Planting and cultivating methods employed in many parts of the country are rudi- mentary and manual labor is used for many operations which might be more economically and efficiently performed by the use of equipment. As an example of this, a substantial per- centage of the ootton crops raised in the northeastern States in produced by small farmers who break. turn and cultivate their small patches of land by the use of a single implement, the hand hoe, and in other areas a large part of the corn and beans crops are produced with aid of a hoe or, at the most, a seall hillside plow. The various items ralling within this classification were imported to the extent of approximately $1,000,000 during 1926. of which the United States supplied approximately $625,000. Since that time there has been a decline in the importation of plows. plowshares and other turning equipment, seeders, incubators and brooders, domestic production of some of these items having expanded sufficiently to take care of a larger part of existing re- quiresents. Offsetting these losses, however, has been the remarkable increase during the 20639 Regraded Unclassified -10- Last 190 years of the imports of cotton presses. hay presses and ginning equipment. The value of laporte during 1935 was $2,620,000. States continues to be the principal source of growth supply of for domestic agricultural The United having supplied $1,525,000 worth during 1935, but the felt. Most severe BARU- equipment, and competition from other foreign sources is being aid of its 'compensative' foreign facture offered by Cermany. stich has been able - with the the last competition machinety soil cullivatory trading team it contire. appears eyatem houses 13 especially - However, unlikely has to improve prevented in the that such its firmly Germany the position lines lower entroached AS can priced substantially presses. seriously German position disc threaten equipment in harrows, of this certain market the 1935, peg-tooth from position American during making harrows rapid of agricultural the with and headway, United it sigh- plow States The rapid expansion of cotton culture during 1934 and bringing an unprecedented demand for baling and ginning equipment. was especially beneficial to American trade, as only 5. small part of these requirements were supplied by other nationals. With this dovelopment of cotton culture, attention has turned to the utilization of such by-products 62 cotton seed for the production of cotton seed oil, cake, etc., and most of the equipment thus far brought in for the new oil mills established has been from the United States. but a large foreign concern contemplates the purchase of European equipment for several new wills to be established in the northeastern States. The outlook for Aperican trade La agricultural equipment is satisfactory. The shortage of labor in rural districts and the steadily rising labor costs should accelerate the trend towards the greater utilization of labor-saving equipment, extending it to the medium-sized (arso and possibly even some of the small farms, in addition to the large landholders. The steady division of large boldings into smaller units operated under the personal super- vision of the owner, especially noticeable in former coffee growing areas where diversifi- cation is displacing dependence on that single crop for income, also favors more intensive cultivation. Likewise, it 18 probable that the constant efforts of the Federal Government and of some State governments to promote the production of wheat will extend cultivation of List crop an line southern States within a reasonably short 1120. especially ir world wheat prices should show further substantial advances. Automotive Vehicles and Accessories The largest item of Srazil's imports from the United States is motor vehicles. Aside from the actual value of the motor cars and their accessories, which amounted to 22% of all importe from the United States during 1935. they influence the purchase of gasoline and lub- ricante, Lires and other rubber products. road building equipment and many other items of less importance, The growth of motor car imports during the ten years prior to the depression 753 re- surkable, having increased from less than 10,000 units in 1920 to 54,000 units in 1929, but an even more violent contraction occurred in 1930 when imports amounted to less than 2,000 waits The effect of the serious disturbance to distributor organizations, financing, and purchasing power has disappeared only slowly, but there has been a steady increase in the volume of importa during recent years, the highest figure having been attained in 1935, when 20633 Regraded Unclassifi 81 -11- 9,640 passenger car units and 7,892 truck units (both figures including chassie without bodies) were imported. Nevertbeless, It is doubtful whether there are 68 many motor ve- hicles in use today as was the case five years ago, for average annual oar mortality possibly exceeds the annual imports, in spite of the proportionately large number of old models still in use. or the estimated 140,000 vehicles now in use less than half have been imported during the last six years. In 1935. 94 percent of the passenger car imports and 96 percent of the trucks wore of American sake. This proportion is approximately the case as in 1926, but there has been . steadily increasing tendency for motor vehicles to be imported in an unfinished or knowked- down condition. in order to obtain the benefit of duty rebates. The first assembly plant 985 erected by an American fira in 1920 within the city limits of Sao Paulo. In 1925, another American company opened an assembly plant: this was rebuilt and enlarged in 1929. A third American company begal local assembling in 1936. The Brazilian import statistics do not show separately the volume of imports of complete and unassembled vehicles. but it ie estimated that about 80 percent of the total passenger der sales are made by the local assembly plants. Practically all of the truck bodies are manufactured in the country, the statistics of truck imports referring almost exclusively to chassie. The poor condition of rural roade is ao obstacle to the rapid expansion of automotive sales, but the broader distribution of purchasing power is gradually tending to enlarge the market. The immediate outlook for sales in fairly favorable, although it say be nome years before the pre-dopression peak is again reached. Furthermore American cars are mesting more severe competition from Europe. particularly Germany. American participation in the Brazilian automotive market declined from 94.6 percent during the first quarter or 1936 to 91.6 percent in the second quarter and 90.9 percent in the third quarter. German prices are reported to be in some instances $300 lower than the cheapest American job. British and Swedish pakes of trucks have also been imported in appreciable quantities. Airplanes and Parts Ao item which is looming larger in American-Brazilian trade is aircraft and accessories. Ten years ago, Brazilian imports of airplanes were of no little importance that they were not shown separately in the official statistics, whereas in 1935 the total value of the imports of airplanes, airplane motorá and accessories reached the considerable figure of 31,908 contos, or approximately $1,800,000. of this total the United States supplied $1,000,000. American airoraft has held a predominating position in the Brazilian Army and for 002- mercial flying during a number of years, although in the Navy there has been a disposition 20639 Regraded Unclassified -12- fros one of several other countries. The fact the maintenance the repair of shops American of military to purchase aquipped with scols suited to the inspection and for this motors, aviation are alement in favor of the U.S., but the fundamental reason seronautic preference has been the an conviction prevailing in the Brazillan Aray and commercial with circles has that been American aircraft offere the dual attraction of excellent performance attractive prices. Commercial avaiation has rapidly developed in recent years and during 1935, the moven commercial lines operating in or over Brazil flew a total of 3,000,720 kilomaters and 25.- 592 passengers, and carried 161,720 kilos of freight. In that year there were 59 planse employed in this service, compared with 13 planes employed by the 3 lines operated in 1927 Flying by amateurs has also steadily increased in recent years. but is still limited to 1. very small group. At the present time, American airplane sanufacturers are encountering more severe com- petition for such business as in offered, both silitary and commercial, than at any previous time In addition to the occasional orders of anateurs for planes from Germany, France and Great Britain, recently the Brazilian company which plans to operate a schedule service be twood Rio de Janeiro and Sao Paulo, purchased Junkers planes on an arrangement whereby the supplier accepted sharee in the company as partial payment, and the Brazilian army and navy have recently cade purchases in Europe. Although American avistion equipment is held in high esteem by Brazilians, it is meeting with competition from Europe. Cost The United States vas formerly one of the principal suppliers of coal in the Brazilien market, dividing this business with Grest Britain, In 1926 imports from the United States stated to approximately $10,000,000 In 1930, Great Britain took a commanding lead which at has held ever mince. In that year Germany also became one of the principal supplying countries. During the last three years, shipments from the United States fell to low levels. and in 1935 too United States supplied only 71,000 tone (valued at approximately 6400,000). out or a total of 1,314,000 tosa, Practically all of the coal coming from the United States was purchased by American owned public utilities. During that year Germany supplied 150,000 tons directly, 45 well AS probably all of the 333,000 tons shown as having been shipped from the Netherlands. Great Britain supplied 652,000 tons. The effect of the componsating system imposed by Germany is more graphically illustrated in the sovement of coal than in any other item. A substantial part or the blocked credits of accumulated in Germany from the export of Brazilian products belonged to the Government In order Brazil, although technically they were held for the account of the Bank of Brazil. satiofy (§ liquidate these credits, pressure was exerted on Government-owned State-owned their requirements for imported materials. from Germany, with entities that the to roilways placed the greater part of their orders for coal the with result that country. mines coal are increase able to so long as Germany continues its present in the Brazilian market for will There appears little likelihood that American participation American zines quote prices 00 low as scarcely to exceed "compensating" the transportation system coste and German from to Brazilian ports. 20639 Regraded Unclassified -18- C2 Foodsturfa The effect on importa from the United States of the progress which has been made during the last ten years in domestic processing is most apparent from . study of the import DOVO- sent of wheat and flour, In 1926 the United States supplied more than 113,000 metric tons of flour, over 12,000 metric tons of malt. and 85,500 metrio tons of wheat. The value of Brazil's imports of these items from the United States reached the large sua of $18,500,000. The United States supplied almost all of the flour and & substantial part of the wheat requirements of the northeastern States of Brazil, as well as & small percentage of the imports of the States lying in the central coastal region. Flour milling in the central and southern sections or the country, favored by & customs differential vas steadily ox- panding but had not reached a point where it produced enough to satisfy all of the require- ments of that area. Argentine flour found e fair-sized market. The sharp decline in wheat prices during 1930, followed more slowly by prices of 10- ported flour, tended to favor dopestic milling. and the subsequent wheat-coffee 'barter' arrangement between the United States and Brazil (which resulted in the prohibition of flour imports for a period of almost two years) was a strong stimulant to domestic flour milling and resulted in a loss of trade to American mills which has Dever been regained. By 1935 Ameri- can participation in the Brazilian market for malt, wheat and flours had shrunk to $40,000 which represented an issignificant part of the flour requirements of the northeastern States There in little possibility that vo shall be able to regain the ground lost as a supplier of any of these commodities. Domestic millo are now prepared to supply practically all of the requirements of the country and Argentine wheat, although still considered by the trade 49 loss satisfactory for tropical requirements than the hard winter wheat of Canada and the United States, la imported at lower prices and has as incontestably predomi- nant position. In the market for fresh fruits the United States has also lost ground. Brazil finde it necessary to import substantial quantities of the fruits grown in temperate zonse and the domand for these has been steadily increasing. While the United States is still the princi- pal supplier of apples, it has not kept pace with the expansion of the market, whereas Now Zealand, Canada and Argentina have all increased their participation substantially. In 1926 the United States supplied practically all of the imported pears. whereas in 1935 Argentina supplied & larger quantity than the United States. Imports of other fresh fruite during 1935 were more than double the quantity brought in during 1926. but the United States supplied only 12% of the total. Electrical Equipment and Accessorios In 1926 the United States was the largest supplier of Brazil's imports of electrical machinery and equipment. but during the past three years It has lost ground to European competition for supplying certain types of materials falling within these groups, a. Loss most apparent in equipment for the generation of electricity and the maintenance of alectric services. As an example of this, in 1926 11 supplied over 40% of the $865,000 of electric dynamos and generators, leading all other countries by & safe margin. whereas in 1935 it supplied less than 25% of the $160.000 imported, against $60,000 from Germany and slightly 20639 Regraded Unclassified -14- from Sweden, or the $813,000 of electric transformers brought in imported during 1935, in 1926, Jest than $30,000 mupplied $477,000. whereas of the $560,000 been able to hold its the the United supplied only $165,000. The United States has of the total of rela- Dolted States 35 a supplier of electric motors, furnishing $185,000 imported during $583,- 000 1170 Laported position during 1935, compared with $345,000 of the $1,190,000 1926. bes been a remarkable growth in the use of electric fixtures and lamps. To neet depand, There one of the large American manufacturers has established a lamp factory here which this supplies the major part of the lamps consumed in the central and southern parte or Brazil It 10 because of this domestic manufacture that imports of electric lamps declined from 112,000 Milos in 1926 to 95,000 kilos in 1935. During the last two years. however. Japan has been an important factor in the supply of the imported article, having increased its share from 107 kilos in 1926 to 90,400 kilos in 1934 and 84,000 kilos in 1935. Of the $160,000 of electric lamps imported in 1935, Japan supplied approximately $95,000. offsettive to some extent the loss of trade in equipment for generating. transforming and distributing electric power, there has been created a much broder field for electric refrigerators. radios and other household appliances. Unfortunately for purposes of oos- parison, the statistical grouping in 1926 was so all inclusive that it did not separately list many of those articles which now represent & substantial part of the trade of the United States. Importe during 1926 of "Machinery for electricity and for electric light", which apparently included all items not separately listed, were valued at 33,782 contos or approximately $4,565,000. wherens during 1935 imports under the same group amounted to 52,141 contoe or approximately $3,024,000, but during 1935 there were additional classi- fications including radio telephonic and telegraphic apparatus. radios, radio tubes and 80- dessories, electric refrigerators and accessories and electric domestic devices, electric machines and apparatus for technical uses, the value of which amounted to approximately $4,890,000. In 1926 imports from the United States ascunted to about half of the total or $2,454,000 and in 1935, again amounting to about half the total, it reached the value of $3,849,000 or this total, radios, radio tubes and radio accessories accounted for $1,720,- 000 and refrigerators and accessories and air conditioning material for an additional $2,000,000. The rapidity of the expansion in the demand for radio broadcasting and receiving data during the post-depression years attests the ability of the Brazilians, despite the low exchange value of their currency, to purchase luxury Items. Prior to 1935, American manufacturers MoΓo able to supply almost all of the depand, but the Philips radio has since become A serious contender for the market, not only by offering a wide range of sets at prices lower than some or the well known American makes, but also by attracting dealers by core liberal credit terms and as active advertising campaign. It is estimated that during 1935 Philips sold approximately 25% of the receiving sets marketed, and has apperently In- creased that percentage during the first half of 1936. With rull allowance for the heavy importe of radio receiving sets during the 1nst stations three years, it would appear that the market in expanding. The number of local broadcesting the added is increasing and nome betterment is apparent in their to which there 14 and attraction to the user of better transmission of foreign programs; broadcasting stations improvements in short wave longth receiving. 20639 Regraded Unclassif -15- 63 This anticipated increase in demand may not be reflected in importe for it is likely that production within Brazil say be undertaken DD a larger scale. At the present time some assembling is done within the country. but the locally made sets are mostly small units of less efficiency than the imported article. The market has grown to a point where econo- mical production can be undertaken by 9008 of the larger suppliers and it would appear reasonable to suppose that a move in this direction will be ende within a reasonably short time. If so, 11 would affect American trade in this line. Although there has been a sustained growth of the market for refrigeration equipment, this has been most apparent in the larger conters of population and too country still offers enormous possibilities for development. Ao with radlos, American refrigerating units, both for domestic and commercial purposes. have predominated by reason of their recognized superiority and intensive merchandising methods. An interesting sidelight OD merchandising methods is the fact that a group of American owned public utilities has marketed a large number of domestic units by installment selling, collecting monthly payments by adding them by adding them to consumers' light bills. While domestic units are imported complete, the boxes or cases for a substantial part of the commercial unite are made locally. It would appear that imports of refrigerating units should increase during the next several years as the public learns to appreciate the convenience and economy of household and counercial refrigeration. However, the high cost of these devices in relation to the income of the average Brazilian family limits the market for household units to that small group with independent seans, exercising one of the better paid professions or employees falling within the higher salaried class. If the present rapid increase in apartment buildings continues in the larger cities of Rio de Janeiro and Sao Paulo, owners will find It necessary to attract tenants by offering better inducements, and it is probable that the equipment of such apartments with refriger- atore will occur. This trend has developed to a limited extent. Attempts to introduce sir conditioning equipment have not proved BO successful M to judilfy the prediction of an immediate expansion. although ultimately this will develop to sizaable proportions. The costly pioneering work of introduction has been carried on by one large American concern during several years, but only B few places of amusement and n. For offices have been equipped with these systems. The high initial and maintenance costs have béen the chief deterrent (the power company in Rio de Janeiro charges the flat lighting rato for energy consumed by air conditioning units), but a contributing factor to the slow development has been the resistance of a large part of the public, accustomed to air circu- lation by the usual apertures in adifices, to the dehumidified cooled air. As Rio de Janeiro, Brazil's capital and chief summer resort, and all cities lying to the north are in the torrid zone, where the long summer temperatures make homes, offices and places of asuse- ment uncomfortably hot during many months of the year, air conditioning is e logical develop- ment of the future. The use of other foreign made electric household devices has not been developed to a great degree. Many articles, such as lamp stands, lighting fixtures, and others, fana, etc. are made locally, and there has not developed a wide use of electrical cooking ranges, toasters, heating pads, grills, etc., nor, even in the more temperate parts of Brazil, of household heating devices. One of the chief obstaloes to the development of the market for euch articles is the high cost both for the article and for the electricity for its use in relation to the average income of the Brazilian. 20639 Regraded Unclassified -16- Irvo and Steel of iron and steel in Brazil is increasing of the each raot year that as the larger Government quantities has The consumption construction and other purposes. in spite public building during the spent are used little for money In the construction of road, port works or last five years. expanding domestic Industry now contributes a substantial the volume of part imports, of the which re- A rapidly of the country, although it has net sensibly reduced The extent of the growth of doses- quiremente Approximately the name tonnage 89 in 1926. 1926 pig iron production to 1935 eare são staol production is apparent from the fact that during and rolled steel products tit iron 21,300 tons: steal billets, blocms. etc. 9,557 tons; of pig iron totalled bars, roda and profiles 16,058 tons, whereas during 1935 production Based was such 45 tons, steal 52,070 tona, and rolled steel products 54,234 tons. has on moved figures of 55,070 and production. it would appear that consumption of iron and steel upward duying imports the last ten years from approximately 350,000 tons annually to approximately 450,000 Loss. The participation of the United States in the market for imported iroo and steel de- clined from 25% during 1925 to 22% during 1935. and possibly & smaller percentage for the present year, as the full effect of the lower prices quoted by European competitors was only discernible in the figures for the latter part of 1935. Since the middle of that year American steel concerns have lost to the Germane many attractive orders for steel sheets and plates, galvanized sheets, barbed wire, steel tubes, raile and accessories. Exempli- fying the severity of this competition. during 1934 Poland secured a number of large rail orders from different railways by underquoting American and other competitors, whereas during late 1935 and early in 1936 Polish mills were unable to meet German price competition. À remarkable expansion in the dosestic canning industry has resulted in a rapid 10- cresse In the consumption of tin plate, imports of which increased from 16,191 tona in 1926 to 31,080 tens la 1935. American manufacturers were aspecially successful in improving their position against competition during 1933, 1934 and early in 1935, but towards the end of the latter year sales were aleo affected by the favored position of subsidized Cerman manufacturers she, shipping through Dutch and German ports, became leading contendere for this business. The following table, listing & few of the items in which the United States was a larger supplier during 1926, illustrates our recent losses and brings out the fact that Germany has become the principal supplier of ssay of the articles falling under this grouping. 20639 Regraded Unclassifie -17- Table No. 5. Brazil's Importe of Selected Items, Iron and Steel Products, 1926 and 1935 1926 1935 Principal Principal competing competing Items Total U.S. BR country % Total U.S. % country % Tons Tons Total Toos Total Tons Tons Total Tone Total Belgium Germany 1. Iron Plates & Sheets 20,251 5,319 26.3 6,934 34.2 28,093 6,567 23.4 15,066 53.6 Cermany 2. Galvanized Sheets (Included in No. 1.) 6,805 2,245 33.0 3,687 54.2 Germany Germany 3. Barbed Wire 30,442 6,122 20.1 12,773 42,0 20,324 5,537 27.2 8,882 43.7 Germany Germany 4. Other Steel Wire 21,028 1,335 6.3 10,317 49.1 29,438 4,895 16.6 15,326 52.1 Gr. Britain Cermany 5. Galvanized Corrugated Sheete 12,363 5,569 45.0 6,083 49.2 403 48 11.9 300 74.5 Gr. Britain 6. Steel sheets for construction Included in No. 5.) 4,380 2,086 47.6 1,626 37.1 Gr. Britain Holland 7. Tin Plates & Sheets 16,192 4,927 30.4 11,074 68.4 31,810 10,637 33.4 6,861 21.6 Belgium Germany 8.Iron Superstructure 15,871 1,952 12.3 5,645 35.6 10,865 1,567 14.4 5,481 50.4 Gr. Britain Cr. Britain 9.Tel. & Tel. Posts 7,462 3,792 50.8 1,046 14.0 550 20 3.7 330 60.0 Belgium Poland 10.Rails 127,600 22,155 22.2 56,170 44.0 53,670 5,763 10.7 14,602 27.2 Belgium Cerbany 11. Pipes, Tubes & Joinings 40,199 5,362 13.3 11,734 29.2 31,753 4,859 15.3 9,136 28.7 20639 C4 Regraded Unclassified -18- Industrial Chemicals El Press wide variety of industrial chemicals but the relative quantities insignificance of the differ- Brazil requires 13 a snown is the attached tables, attest the when consideration or La ant items reported. country having 45 dillion Lonabitants: especially within Brazil. the given degand to the for fact % that for industrial chemicals are produced the United States has been one of the minor sources the of exception supply, of contri- For easy casil years quantities of the various products imported, with of sulphur from sul- buting caustic only soda, chemical fartilizers, rosin and vaseline. Imports exchange rate, have been the phur, States have declined since Chilean mines, favored by 5. low United to underquote all competitors. while sulphur imports increased from the 3,900 tons in able 1926 to 13,700 toos in 1935. the United States has not benefited from greater the use or this commodity. In 1926 the United States supplied slightly more than half of approxi- sately $160,000 of sulphur imports and Italy supplied most of the remaining. In 1935 the United States supplied only $21,000 of the $400,000 imported. whereas Chile, which formerly #53 not an exporting nation. supplied $210,000 and Germany, £65,000. The recent establish- ment of 5 large caustic soda plant in Rio de Janeiro capable of supplying the needs of the central region has already ourtailed imports, and will undoubtedly displace a greater quan- tity of the foreign product as =000 as it 10 in full production. The expansion in textile manufacture has been reflected in an increasing volume or êye imports. these having more than doubled during the last 10 years and amounted to 816 metric tons during 1935, German dypetuffs moving from German ports or through Holland domi- nating the market. During 1935 the United States supplied only $200,000 of the $2,800.000 imported, and during the early months of 1936 American producers found it increasingly difficult to neet German price competition. While further expansion will undoubtedly occur in the Brazilian market for dyestuffs. 50 long as German manufacturers continue to be aub- midized, the trade with the United States will suffer. A number of foreign manufacturers. including some prominent American firms, have 10- lablished branch establishments in Brazil for the compounding and packaging of chemical and pharmaceutical apecialties, using therefor materials partly imported and partly of do- sentic origin. A considerable portion of the trade, more especially in the line of pharma- ceutionls, 10 now being supplied in this 987 Luster Brazil's forest resources enable 11 to supply its own needs and & substantial part of the requirements of its neighbors - Argentina and Uruguay. Only an occasional shipment of dressed lumber is imported, usually for some special job and more often for 2020 of the northeastern States where price differences between the foreign and domestic product 875 not so great as in the south or central regions, Formerly Brazil purchased substantial quantities of lumber manufactures, but for the last 20 years most of these requirements have been satisffed by domestic mills or handicraft. Importe during 1935 classified under this item. amounting to approximately $125,000. were scetly vall board and scoustic board with very small quantities of plywood and vensers 20639 Regraded Unclassif ed 65 -12- Because of the domestic industry and high tariffe, there in no reason to anticipate an increase in the sale of American lumber or lumber manufactures in Drazil. Machinerz - Industrial and Band Building The expansion in domestic manufacturing has brought with 11 a growth in the demand for certain kinds of industrial tools and equipment, most of which must be imported. The United States has not been a large supplier of equipment for weaving sills, al- though it has been a etrong contender for equipment for knitting sills. During 1935 it found Cermany offering strong competition for the limited amount of business offering in Roitting machines, spinning and twisting machites and other knitting machinery. In apite of restrictions on the importation of toxtile machinery, set up by the Government to relieve over-production, there #na brought into the country a fair volume of looss. and other weaving, and finishing machines. but the United States supplied only B negligible percentage of this. The domestic manufacture of shoes is now sufficient to meet the entire needs of the country. Previously the United States supplied from 75% to 90% annually of all of the shoe machinery required by this industry, and while it is still the principal source of supply, during 1935 Cerman competitors were able to improve their position substantially by offering prices well below the levels fixed by the chief American supplier: Importa were limited, however, to replacements of parts for existing installations, 0.0 the Government also regu- lated these purchases in an effort to avoid overproduction. For the last two years there has been an active demand for both hand and power driven equipment for metal working plants. including lathes, planers, shapers, putches and drills, grinding machines. sheet and plate metal working machinery, etc. The participation of the United States in this group is now smaller than ten years ago and is limited to occasional orders. mostly from the Government for its military branches, $ few from Government owned milways and foreign owned public utilities, and rarely for plants dedicating themselves to lbs production of articles for general consumption. While American manufacturers are in position to offer aquipment of superior workmanship, finish and efficiency, the Brazilian industry has not reached that point where these considerations offset initial prices and terms of sale. Relatively low labor coots and limited output, coupled with the fact that callbrated accuracy is sufficient for the practical purposes of this industry in its present state, effectively counteract the arguments of greater efficiency and accuracy when these may only be secured at a greater initial outlay. On recent bide called for by the Government for a wide range of machine tools, American prices were In some cases 50% higher than German prices. with the inevitable result that practionlly all of this business was placed ta Europe. The condition encountered in the metal working industry applies. although to 6. smiler extent, to the market for woodworking machicery, and in this line also the United States has lost ground to its competitors. 20539 Regraded Unclassified -20- noticeable in the imports of mining equipment supplier and in machinery the face and apparently A small the increase United States was maintained its relative position as a of severe competition. of sugar mill machinery are running below the average Relatively for pre-depres- little Although imports during 1935 were the largest for several German years. and Belgian manufacturers of mion years, imports was imported from the United States, British, was favored with orders having this equipment been more successful than American suppliers. Germany for alcohol and alcohol dehydrating squipment. purchases of readbuilding and excavating aquipment were greater during 1935 than immediate While preceding year. they were still well below the quantities brought in during any 1926. The Federal and State Governments have been limiting their highway program almost solely to the maintenance of existing roads. although some extension has occurred in cer- tain sections of northern States and in Sao Paulo, hence there has been little opportunity for an expansion of sizeable proportions to coour in this grouping of equipment. The United States continues to be the leader supplier of such small quantities as are imported, although Germany has secured some of the business offering for excavating equipment. Summarizing the situation in 1935 as compared with 1926, it seems apparent that the United States has lost ground, partly AP a result of. the ability of competitors to offer equipment suitable to the market at lower prices and partly because there has been 8 smaller deesad for those Items which previously were imported mostly from the United States. Petroleum Products The progress of industry and the greater number of motorized vehicles now in use in Brazil. including therein military and civil aircraft, has been reflected in the consumption of petroleum products. As Brazil does not produce petroleum, consumption is fairly accurate- ly portrayed by imports. During 1935 the quantity of gasoline imported into Brazil was approximately 70% greater than during 1926, although still slightly below the peak years 1929 and 1930, whereas herosene imports held at about the 1926 levels and mineral fuel oil importe were approximate- ly double those of ten years ago. During 1935 there was imported a substantial quantity or crude oil from Argentina, which was almost solely consumed by the oil refinery recently established at Uruguayana and which now produces gasoline, kerosene and fuel oil. Lubrics- ting oil and paraffine imports have also been increasing, but foreign sade sineral greases are being replaced to some extent by the plant owned by cae of the large American oil 00B- panies, which sharply increased its output during 1935. The United States has lost ground to competitive supplying nations in this group of commodities also, - Mexican, Peruvian and Venezuelan fuel oil, gasoline and kerosene imports having increased at the expense of American exports. In 1926 the United States supplied approximately $19,200,000 or 77% of the $24,900,000 imported. whereas during 1935 it supplied countries only $10,100,000 or 55% of the $18,200,000 imported A substantial part of the imports from other than the United States were brought in by one British controlled and 000 market American controlled oil companies, which have found it more advantageous to supply this from other sources. 20639 Regraded Unclassified 66 -21- Petrolaum products, representing 19% of the total importe from the United States in 1935, are DOB of the major items or United States trade with Brazil, hence diminished 18- ports from the United States are immediately reflected in the participation of that cquatry in the general import movement into Brazil. There is definite avidence that the degand for patroleum products is steadily expanding. but by reason of the proximity of other sources of supply, it appears unlikely that American exports of this group of commodities will increase. Although indications of the presence of petroleum have been reported at different times from several parts of Brazil, neither the Government nor private companies have undertaken the exploratory work assential to prove its existence in commercial quantities. hence the growing needs of the country must continue to be supplied from abroad. Refining bas only been undertaken by the plant mentioned in preceding paragraphs. but the trend towards na- tional sufficiency may focus attention on developments of this character when conditions make it economically feasible. Office Equipment and Stationery Supplies Brazil does not have a large per capita consumption of foreign made office equipment and stationery supplies. The use of mechanical equipment for labor saving in offices is limited to a few of the more essential devices even in the larger cities, and in sany of the smaller towns even these are frequently dispensed with by businesses which might be ex- pected to resort to their use: Formerly Brazil imported a fair quantity of office furniture, some of wood and nome of steel. By 1926 practically all of the demand for wooden furniture and a part of the limited steel furniture was being supplied by local factories, but there still existed B. fair demand for such steel devices as filing cabinets. card indexes, cash boxes. etc. Impetus to the domestic fabrication of these articles was given by the decline of the milreis and the sub- sequent several increases in customs duties. The tariff act of 1934 sugmented duties to such levels that by the beginning of 1936 the demand was being supplied practically entirely by local factories, except for nome needa of the Government or entities which could secure tariff preferences and that small group of businesses which found it essential for management purposes to install card indexing systems. In the face of existing tariffs, there appears little likelihood that the market for imported steel furniture can be extended. American typewriters have always predominated in this market by reason of their known efficiency, sturdy construction and the intelligent sales methods adopted to familiarize operators with their use. While the majority of the machines in use are of the standard size, there is & fair market for portable machines, and a. small demand has been created for some of the oversize carriages. The number of machines imported during 1935 was above the member brought in ten years ago, but the competitive position of American typewriters was less favorable than previously, its share having declined from 82% to 64%. Germany was able to improve its position by reason of the operation of the compensating system of exchange, at times offering prices DA one well known German typewriter 25% below American prices. These lower prices induced several of the departments of the Government of Brazil and several State Governments which hitherto were equipped with only American typowriting machines to purchase German equipment, and a larger volume of substitution was in prospect. 20639 Regraded Unclassified -22- 18 the fact that the stocks of primary distributing that there agencies has been for an German exten- Significant are also more complete than st any time previously and ribbons and carbon Typerriters distributing channels. In lines of typewriter Brazilian market from paper, sion the United of secondary States also sustained a loss of participation in the German and viset European competition. no comparative figures for imports of calculating machines are would available, as ware net separately listed in Brazilian statistics during 1926, it appear that the Chese sorket has not regained the pre-depression volume of purchases of these devices. In- porto during 1935 under the classification calculating machines, which also embraces adding machtnen, were valued at approximately $440,000 of which the United States supplied $305,000 wid dersony approximately $100,000. It would appear that Germany has displaced the United States au the leading supplier of calculating machines, but has not been equally successful in competition for the market for adding machines. The United States also continues as the leading source for statistical compilation equipment This is partly due to the fact that the local distributor for the largest Amori- can controlled concern contracts this service to the Government and Government entities. the principal uners of this type of equipment The official statistics do not separately list imports of this equipment. most items having been included within the 1936 figures on cal- culating machines. Miseographing aquipment imports were also smaller during 1935 than in some of the pre- depression years. but unfortunately comparative figures are not available. Under the clas- offication duplicating and registering machines, official statistics show a total importation of approximately $385,000 of which the United States supplied $328,000. Predominance of the United States as a supplier of the devices falling in this group is accounted for by the pressisence of American made cash registers, which have encountered little competition This Le one of the fee lines in which Germany has not improved its position. There la only A very eqail degand for addressing machines, dictaphones. and time stamp- 10g mechines. - the occasional purchases having been cade from the United States, but the last selering machines purchased by the Post Office Department were British. In the eall office supplies field, the United States now contributes only a small part st The volume purchased by Brazil ten years ago. Local manufacturers supply most of the Jesand für writing tablets, paper, elastic bands, erasers and pen holders, and various European countries participate with American concerns in the market for pencils. pens, pins, elips, etc. fallogy Rolling Stock A Inrge part or the rolling stock and railway equipment required by the 20,500 miles of substantial. relleary la Brazil is supplied from abroad, hence the annual volume of is Total During 1936 the imports of railway rolling stock and thereof purchases reached a shoels approximately and 30%, consisting of $308,000 of railway care and supplied value of approximately $14,700,000, of which the United States parts $4,300,000 except boilers. other appurtenances for railway cars, and $2,757,000 wagons, of locomotives $1,235,000 and of parts, axles, 20639 Regraded Unclassified E7 For the past several years the railways of Brazil have been limiting their purchases to their most urgent requirements. and it was not until 1935 was well advanced that there were evidences or & revival. although during 1934 8 contract was awarded by the Central do Brazil Railway to the British concern Metropolitan Vickers for the electrification of lines to the suburba of Rio de Janeiro. During 1935 and the early months of 1936 the volume of pur- chases have been slowly mounting, but many of the railways. especially those dened by the Federal Government and some of the State Governments are in dire need of rolling stock and other aquipment which must be purchased soon If they hope to maintain orderly treffic move- ment. Unfortunately. American manufacturers have not been able to benefit from the increasing deannd. During 1935 there were imported approximately $10,000.000 of rolling stock and equipment, of which the United States supplied the insignificant sua of $533,000. Whereas during 1926 the United States and Germany participated to almost an equal extent in the pur- chases of locomotives. during 1935 the United States supplied only 51k of these, valued at $268,000. in contrast with 32, valued at $1,146,000, supplied by Germany. The United States furnished only $106,000 of the accessories for locomotives (except boilers) imported by Brazil during that year against the $121,000 supplied by Germany, and it failed to sell any of the $2,432,000 purchases of railway cars, practically all of which were of Belgian origin. The United States also supplied $21,000 of street railway cars and $29,000 of dump cars, cane cars, etc. For many years American railway equipment enjoyed ao excellent reputation in Brazil for quality and performance. This, coupled with the service offered by manufacturers, reason- ably prompt deliveries and satisfactory credit terms frequently offset small price differ- ences favoring Continental European countries, although some of the British owned railways showed 5 preference for British manufactured equipment. In recent competition. however. the price differences favoring Cerman locomotives and parts have been no great, representing from 25% to 40% of the American prices and with long terms of payment, that other consider- ations could not be made sufficiently attractive to overoome this handicap. with the result that Germany has been more successful than any other country. Belgian prices for railway care have also been such more attractive than American prices with consequent displacement of American participation in this business, except that an order for 400 freight cars was placed with an American manufacturer early in 1936, because of the superiority of construc- tion and esterials offered. Rubber Products Although Brazil has an unlimited supply or raw rubber and for many years eso one of the world's principal sources for this product, it in a lärge purchaser of manufactured rubber goods. Ton years ago Brazil exported raw rubber to a value of $16,400,000 and imported approximately $5,500,000 of manufactured rubber goods. During 1935, after nome recovery had occurred from the low point of immediately preceding years. exports of raw products were valued at only $290,000, and importe of rubber manufactures. closely approximating the volume attained in 1926, wore valued at $1,900,000 While Brazil still relies on foreign sources for most of 110 requirements, there is de- veloping a domestic manufacturing industry which now supplies . substantial part of the smaller items of more simple manufacture, such as packing gaskets. hose, hospital and labora- tory equipment, druggists' sundries, school supplies, shoes, etc., and there are four fac- torles producing tires and tubes. The largest of the latter. which is located in Rio de 20639 Regraded Unclassified operations early in 1936, is equipped with It sodern is now machinery turning out and approxi- is under Janeiro and began direction of American production engineers. production to the technical and 150 inner tubes daily and anticipates stepping contender up for the tire 250 sately 150 tires the next Oni-ty days. This concern is a serious together with lower prices walts each sa the within splendid appearance and freshness of its products consumers. market. than foreign competing articles have sade them popular with years the United States has been the leading supplier of the total Brazilian market For many and tubes, supplying during 1926 approximately one-third of the More imports, and for tires improving its participation to two-thirds of the total in 1929, and tubes severe DOB- petition half of the total imports during 1935. Prior to 1935 the principal competitors and this steadily in recent years has caused sume recession. but American tires accounted for market for #ore Great Britain, France, and Italy, but during that year German Japanese manufacturers were able to improve their participation. In spite of the excellent selling organizations which permit American concerns to offer racilities which hitherto have attracted the larger part of the business offering. it would appear that the present volume of sales from the United Sttes will decline, unless American purveyors are willing to meet the sharp price reductions which have been made by competitors. German, Italian and Japanese manufacturers are cutting under competitors with prices 15% and 20% below list and all discounts. Equally significant has been the fact that the domestic manufacturer mentioned previously has been able to displace well known foreign products not only in the Federal District but in the aore distant cities of the northeastern and southern States. Texilles Textiles is another group in which the United States has lost 8 substantial amount of trade, During 1926 imports of cotton piéce goods totalled the large figure of $19,000.000 of which the United States supplied approximately $940,000. The domestic mills have been steadily increasing the variety of materials manufactured and displacing foreign made goods. As a result imports during 1935 amounted to only $1,200,000 and of this total the United States supplied only $43,000. Although Brazil is one of the large cotton producing coun- tries, 1% has not developed the spinning of cotton yarn so as to neet all of its requirements and there is a. demand for foreign spun yarns of fine counts or finish. During 1926, cotton yaru importe were valued at $3,288,000. of which the United States supplied $782,000, whereas La 1935 the United States supplied less than $1,400 of the $2,130,000 imported. The question as to whether the United States say be able to increase its sales of yarns depends largely upon whether " can seet the price competition from Europe on fine count mercerized yerrs. and overcome the well entreached position of the British During the early part of 1936 we were able to supply a large volume of business than during 1935, but it is not certain that this trend can be maintained, There in little likelihood that we shall be able to recover the volume of trade held La 1926. as the doseptic industry, protected to à greater extent than ever before, can novt any competition in manufactured products which might be offered by the United States. al- though it my fee) competition later from certain Japanese products. 20639 Regraded Unclassified C8 Silk and rayon weaving has also developed repidly during the last ten years, and now supplies most of the requirements for knitted and woven silk and rdyon goods. The United Stated vas not A large supplier of manufactured silk or rayon goods ten yours ago. but the development of the local industry has made it necessary for Braril to import greater quan- titles of yarn from which the United States has benefited. In the import figures of 1926 silk and rayon imports were classed together, and during that year there were imported 24,114 contos of silk and rayon yarns and threads, of which the United States supplied ap- proximately 10%. In 1935 there were imported 40,000 contos of silk yarns. of which the United States supplied 8,800 contos or more than 20%. and 13,000 contos of artificial silk yarns of which the United States supplied only 120 contos. The chief source of supply of natural silk yarns is Italy. and France supplies most of the artificial silk yarns An important fire producing rayon yarns in the United States has recently transferred a part of its manufacturing interests to Sao Paulo, Brazil. While silk oulture in Brazil. encouraged by Federal aid and State grants, is slowly growing. it 18 not prograssing as repidly as the demand for silk materials, hence importe should continue to increase for some time to comé. In this line the United States may be able to hold its present position, and in rayon " may be possible to improve its partici- pation as intensive selling efforts on the part of DDe of the larger American producers has resulted in some recent expansion of sales in this product. Seeing Machines A remarkable change has taken place in the source of supply of sewing machines. Ref- erence to the attached tables will show that in 1926 the United States supplied approximately 60% of the total imports of these articles and retained that position until 1934, when it contributed only elightly more than 50% of the total. In 1935 imports from Cermany were almost double those of 1934: from Canada, were five times as large during the preceding year. whereas from the United States they were only 50% greater. or the total of approxi- mately $2,500,000 of sewing machines imported, the United States supplied only $1,000,000. but a substantial part of the $600,000 worth brought in from Canada were supplied from Canadian branobes of American conerns. The full effect of the competition offered by Germany was not apparent from the 1935 figures BY the existing distributing organizations were not in position to take full ad- vantage of the market possibilities. With the greater facilities DOW being offered by German manufacturers. both in the form of stocks available, term financing and lower prices. Germany La steadily improving its position and will probably show a further large Increase at the expense of the United States during 1936. Miscellaneous In addition to the foregoing there are many other items imported into Brazil in which the United States trade has been affected by competition from other foreign supplying nations or the domestic manufacturing industry, but as the relation of these to the total of Ameri- can exports to Brazil is less in value, an analysis could only emphasize the conclusions set forth above. Therefore, only a few of these have been selected at random as indicative of the trend. 20639 Regraded Unclassified 26 and photographic material. - Imports of some developed small motion extent picture by the films were 1005 during filming industry which has bean able to popularize to Germany and the Motion pictures 1935 (ban during 1926, probably affected to shorts, especially growth of & domestic AS a supplier. the United States has lost ground 1926, the United Great "newsreel" of type the 37,600 kiles of films imported into Brazil during kilos imported during States Britain: 32,700 and Cermany, 1,413 kilou, whereas of the 34,700 Britain and France 1935 supplied United States supplied 27,700 hilos and Germany 3,816, Great than those dividing the of the remainder. American films still have greater drawing power is of any most nationality, hence their earning power to the American companies greater proportion- other stely than any competitor. nevertheless several German musical films have drawn capacity houses wherever shown. The United States has been able to improve its position alightly as & supplier of motion picture machines, and has a great lead over all competitors in sound apparatus and accessories. While it is known that there nas been a growth in the use of photographic equipment, unfortunately the arrangement of Brazilian statistics does not permit 5 comparison of importe of photographic machines during 1926 with 1935. The United Sttates has been unable to is- prove its position as 1 supplier of photographic machines against the severe competition affered by Germany, but 11 has been able to coke 8 screwhat better showing in films and pho- tographic paper. Lesthers - Brazilian statistics formerly classed all importe of leathers and skins and furs under a single grouping During 1926 there were imported $4,600,000 of foreign products under this heading. most of which were leathers. or this total the United States supplied about one-third, or $1,577,000 Improved tanning and dysing methods DOW employed by the domestic industry. coupled with the higher protection it is receiving against foreign competition have sharply reduced the quantities of imports, which during 1935 represented only 15% of the volume of 1926. American trade in leathers practically ceased, although during 1935 there were imported by Brazil from the United States approximately $60,000 of fura. Stoves - In 1925 Brazil Imported approximately $290,000 worth of stoves, more than one- half of which were brought in from the United States Domestic manufacture of coal stoves and ano stoves has curtailed imports and in 1935 the total value of such imports amounted 10 only $54,000 or this total, the United States supplied only approximately $4,000 worth of stoves other than gas stoves, and $5,000 of [As stoves. Musical Instruments - With the growing popularity of radio, the demand for musical Instruments has deindled to insignificance. Except for automatic pianos and phonographs, the United States #85 not an important supplier eyen leo years ago, and in recent years " States valued at $43,800 - in 1935, none. have supplied very little In 1926 Brazil purchased 60 automatic pianoe from the United Phonographs. - In 1925 American made phonographs accounted for approximately $260,000 United By total imports of phonographs had declined to approximately which the of 1935 the $420,000 of total imports and $144,000 of the approximate $190,000 of records, the United States supplied one-third, and imports of records were valued $22,000, of of which States supplied approximately ope-third. The shrinkage at in only our $25,000 trade in these 20639 Regraded Unclassifie E9 Items has been more than compensated b the great volume of radio receiving sets, 2020 of which also have the phonograph attachment. However, the loss in the volume or business being done in records is also traceable to the improvements which have been made in the loon! pro- duction of these within the country. Steel Cutlery. - Imports have been seriously diminished by the rapid expansion which has occurred in local production, - this decline being from $539,000 kilos in 1926, valued at approximately $1,400,000. to 192,000 kilos in 1935. valued at approximately $490,000. Whereas in the former year the United States supplied approximately $220,000 of the total and was second only to Cersany which supplied $790,000, imports from the United States in 1935 were valued at only $33,000, compared with Germany's $400,000. Rosin and Turpentine. - With the growth of the ootton seed oil industry. this product has been substituted for rosin in a number of soap manufacturing plants. As 5 result, 10- ports of rosin which previously amounted to between 15,000 and 20,000 tons per year. fell to the low figure of 6,740 tons in 1935. Ae practically all of this commodity is supplied by the United States, the shrinkage in volume and value has most seriously affected our commerce. In terms of contos, the value of 1935 imports was almost exactly half that of 1926, but in terms of dollars the decline was from $2,690,000 to $500,000. An accurate comparison of the extent of the Srazilian market for turpentine during 1926 and 1935 is not possible from the official statistics of imports. During the former year Orazil imported 1,621 metric tons of turpentine and substitutes valued at approximately $375,000. practically all of which case from the United States. During 1935 import tonange of turportine amounted to B02 metric tons valued at approximately $110,000 of which the United States supplied $75,000. but B new classification bad been added to the Figures of importe - "Other dissolvents and plastic materials" - which probably included turpentine substitutes. Total imports under this heading amounted to 2,286 tone valued at $255,000, or which the United States supplied $195,000. Nevertheless, comparison of American etatia- tics of exports to Brazil for the two years sentioned shows e substantial reduction in the quantities of turpentine now supplied to Brazil by the United States. Scales. - By superior marketing facilities and the variety of types offered, the United States has been able to improve its relative position as 6 supplier of scales 40 Brazil. Ten years ago Brazil imported 357,000 kilos of scales valued at 2,378 contom, or approximately $235,000. or this total value, Germany supplied $72.000 and the United States $53,000. In 1935, total imports amounted to 157,000 Ellos, valued at 1,479 couton. or ap- proximately $88,000, of which the United States supplied slightly more than $30,000.. Tools and Utensils. - Domestic manufacture of sany articles classed under this head- ing has increased substantially, taking care of & part of the demand for carpenters' and mechanic tools of simple manufacture, which has been reflected in a decline of imports. Up to 1926 there were included in this group such items as hoes, shovela, pickases and simi- lar tools, which subsequently vora separately classified, which explains in part the apparent sharp decline in the figures in the attached tables. Nevertheless, Ln these groups the United States' participation is declining la relation to competitors. American Trade and Brazilian Industrx Manufacturing of sany articles of general consumption was carried on during the Expire period. and further impetus to development ... given by the first custome tariff acts of 20639 Regraded Unclassified republican years. Some industries, such AB textiles, became strongly occurred. established, the early not until the outbreak of the World War that a broad expansion and Since but that it time was there has been a steady growth, both in the range of articles produced in the quantity and quality of goods. force of the additional consumer demand sa purchasing power grown. and the préssure of capital The for investment in profitable enterprises together with the existence of raw as- terials. a greater supply of skilled workmen at relatively low wages, and the fact that there is a heavy concentration of population and wealth within the immediate vicinity of the two largest industrial centers, Sao Paulo and the Federal District. are likely to urge 5 further expansion in domestic manufacturing. Foreign investments in manufacturing any also influence this development. Even with the handicap of exchange depreciation and restrictions against the remittence of earnings to foreign investors, during the last several years the inflow of foreign capital has not entiraly stopped, and with the uncertainties of the European political situation and the effect DE earnings of the growing burden of taxation, it is possible that this aigration will be encouraged. To maintain their markets in Braxil for products which are being shut out by the tariff protection policy of the Government or which can only meet foreign competition It manufactured or processed within Brazil, some American manufacturers are also finding It advantageous to resort to domestic manufacturing or finishing. with the growth of domentic manufacturing and greater competition among these factories, attention must be given to efficiency in operation which should favor equipment with large capacity and which requires less manual labor - a development from which American tools and industrial equipment should benefit. Competition The United States has been able in the past to maintain a predominant position in the Brazilian market largely by virtue of its comparative advantage in supplying such raw materi- als and seal-manufactured commodities as wheat, wheat flour, fruits, sulphur, and petroleum products. The shifting of Brazil's purchases of this type of product to neighboring South American countries. occurring at & time when American manufactured products are meeting is- creamingly severe competition from the industrialized nations of LA 1204 cases, stimulated by governeental intervention-has recently resulted in the dis- placement of the United States by Germany as the principal supplier of Brazil's importe. Mention has been sade of Drazil's offorts to diversify agricultural exporte in order to reduce dependence upon coffee as the main source of foreign exchange. The country has been successful in developing a larger export surplus of cotton and by-products, frozen Fresh fruits, vegetable oils, hides and skins, and rice. In order to keep open the European market lot the most of these products. Brazil has entered into various "compensa- Lory trace agreements in which the value of Brazil's exports to a country is balanced against the volue of imports from the sace country. German exports to Brazil also have been favored Dy the Gerzan system or exchange manipulation and export subsidies. Since the "New Plan" of foreign trada control was put into effect by Cermany in the autuma of 1934, that accibe of the 1936, years 1931-1934 to 20.4 percent in 1935 and to 23 percent during percent the first atte during country has increased its participation in Brazil's import trade from 11.3 (everage) 20639 Regraded Unclassified 70 -29- Whenever Brazilian exports to Germany tend to exceed purchases from Germany, the pro- ceeds of the export surplus are accumulated in Germany in the form of blocked credits which can only be used for the purchase of German merchandise. As it is not in the interest of the Brazilian Government to maintain a large credit of this kind, there has been - tendency for Goverument-controlled companies (suoh as the railways and the Bank of Brazil) to divert their purchases to Germany in order to liquidate the outstanding credits. Ae & consequence, the railways have made substantial purchases of German coal and rolling stock, the Bank of Brazil and Government departments are using more Cerman office equipment, and Government- owned industries have bought German machinery and supplies. In all of these lines the German goods compete directly with types of merchandise of which the United States has in the past been the principal supplier. Japanese participation in the Brazilian market is also increasing rapidly, although the Japanese share or the total is still small, being only 0.90 percent in 1935 and 1.03 percent during the first six months of 1936. Shipping services between Brazil and Japan have been improved. and the Japanese are devoting special attention to enlarging their purchases in Brazil. Recently commercial missions have been exchanged between the two countries. 20639 Regraded Unclassif - (1) 71 1986 1930 1994 1935 com - KILL CON MAST - TOTAL 19,373,001 13,49 18,399,369 18,970 13,260,768 14,07% 13,330,311 2,711 UNIVERSITY 5,025,769 4,393 9,569.00 9,3% 6,508,996 5,803 3,534,56 16,034 wome PAGE 12,675,910 7,666 5,692,249 5,511 1,047,003 and 40,492 ga 1,323,325 1,143 10,000 7 384,000 297 1,487,746 2,456 TTALT - - - - 2,196,408 2,101 333,300 - - - - - - - - 1,254,531 1,652 FESAT FLOUR TOTAL 221,356,318 151,600 158,279,361 92,142 98,633,637 30,099 19,408,536 31,342 ABOUNTINA 56,480 57,154.009 33,29 31,198 34,030,346 n,w UNITED MATE 112,173,357 10,00 74,89,645 V7,450 16,242,973 11,38 6,02,00 6,75% ORDERIAT 11,046,200 7,271 18,959,612 10,285 12,505,665 7,147 3,766,698 2,590 CORN FLOUR TOTAL v94,018 679 342,920 669 14,279 . 25,176 737 une STATE Wag,728 670 338,900 659 10) - ato 5 FLOVER AND KEALS TOTAL 682,14g 1,138 $32,005 2,594 35,731 38 44,636 as 2018 - - - - 5,803 we 11,648 137 UNITED STATE 458,620 961 756,454 2,169 1,394 1 as 1 GREAT BRITAIN 68,653 146 34,088 185 3,226 a 412 . BOLLAND 1,767 - 2 21,514 16 19,00 16 20,336 a - 2,508 -16 1,690 - 17,069 280 9,30% 187 THEAT TITA 542,657,982 255,988 Ged,239,519 birth 256,467 60,721,001 459,463 APPROVAL 392,706,501 184,118 595.017.147 095,393 794,614,967 252,939 680,728,050 433,007 DATE $5,507.543 40,364 27,409,585 9,09 53 6 255,188 187 CARADA 60,699,146 29,570 5,582,500 2,096 5,925,900 1,751 6,370,320 2,015 LARD TOTAL 468,912 1,32 296,726 980 76,6m 310 70,100 349 UNITED STATE 445,072 1,289 TA 34,799 202 34,852 65 GREAT BRITAIN 11,22% 31 42,200 130 36,779 9ª 35,332 127 422134 TOTAL 4,414,725 7,350 2,422,337 4,544 6,191,936 11,273 5,503,47% 12,699 CARADA . - - - 197,292 355 88,24 IDS AMERICA 66,230 $ 97,440 R50 133,900 - 165,607 kga UNITED STATES 4,257,403 7,15% 2,337,539 4,169 2,96,000 5,00 3,537,743 7,499 IN EMILAND . - - - Wa,Geo 765 667,000 1,099 PRATE TOTAL 2,205,957 4,992 1,940,053 4,609 3,346,337 6,502 4,355,037 10,389 35,873 50 225,667 57 1,245,601 1,936 2,184,746 4,823 UNITED WTATES 2,093,474 4,775 1,490,960 3,323 1,892,776 4,075 1,69,271 5,121 SOUTH APRICAN - - - 210,758 579 - - 40,001 10 11111 PROITS - ET TOTAL 553.07 961 1,134,487 3,076 829,775 1,970 1,237,005 3,780 AMERICA 191,251 236 373,851 1,016 339,017 552 575-932 1,82 - WEATHER 68,304 255 40,150 935 21,81 T47 151,310 155 199,131 354 160,127 660 102,568 200 135,479 Mgh 20639 Regraded Unclassified (B) 1215 1993 1410 1926 INCE CURTOS ETLOR 1 - 934 70,365 58% 20,379 5 435,300 1yy 206,864 62 7,536 52 5,949 24,34 45 8,101 119 1 38,540 154 4,701 34 1,556 10,60% 45 15 DIE STATES 56 353 6,282 106 1,371 56 2 number 11,737 sur 28,716 200 1,878 313 15 are MATTAIN 125,727 MOTOR CARE ONE WITH am UNITED 12,006 7,766 57,871 9,629 102,337 101,334 TOTAL 25,992 a 32 4 1,140 Mag 17 Ley 5.536 amount 9,047 91,473 1,363 9,955 7,546 55,577 STATES A,705 33.032 47 548 12 125 new 2,031 5 256 LEY UNIT MAITAIN o 1,671 19 200 51 653 20 § ITALI 4,317 2v5 1,173 . - - way . MOTOR 6,962 25,406 250 3,142 7,407 50,726 119 TOTAL 2,766 SECURITY le 1,40 15 103 60 1,058 41 1,3% UNITED TEATES 6,600 19,946 185 2,045 1,05% 45,625 72 1,276 name 4 voé 1 10 Lay -- 1 -- EMITAIN 19 1,305 a 501 129 714 3 57 CARD FOR PASSIO NOTOR DAES THE . / - - - - 11 67 - (Includet in - Targenger Mator Ogral) - - 6. 39 STATES - - I - - - 5 If CEASSIS FOR MOTOR TM 7,773 73,612 STRAIT 131 3,341 UNITED STATES [Included ta - Metor Trucks) 7,492 67,793 are 104 1,863 RAIL 2435 - 5 50% 2 yet DITE STATES (Included in - Belivary Dars 4 Regona) 2 $ RW RESTAIN 1 76 KILOS 708 MYTOR CARD TOTAL EILON 7,687,314 24,495 2,669,755 KULCS KILOS 13,737 STREET 2,255,02 14,657 44,136 1,251,189 16,007 Si 33,297 3% WITH PATE 75,965 5,564,112 939 32,935 TER 22,070 2,457,060 11,479 2,030,977 11,48 12,182 1,174,209 14,098 TAL 1,202 99.545 916 23,850 695 TOTAL REDICE FOR NOTOR CARD - 155,376 2,066 STO non Included 1a - feberal Accessories for Motor Care) 3,219 205 - that 148,879 2,532 2,128 57 TOTAL 50,473 in issue 56,279 1,82 18 8 9,296 5,105 566 53,159 1,383 THE STATE 31,00 42 16, 4,196 167 28,290 25,5k1 got are name 337 in 23,700 %,279 340 19,222 394 206.14 726 34,296 566 53,159 1,30 Regraded Unclassified 72 (3) 1986 19.10 1934 1935 KILON ETLOR EXICE Ence à - MI NM - , - - - - 052,430 3,067 GIRLIST 16,003 15% WHITED STATES (Inaladad is - Motor Our 779.706 3,350 GREAT SUITAIN 35,788 3,667 ATROLATE UNITED UNITED - UNITE TOTAL - - 76 9,9% 37 6,596 97 18,669 - - 3 - 5 3,9% - 6,097 - STATES - - E 4,72% A 2,106 74 10,580 nasca - - M 4,639 E 162 - - GREAT BRITAIN - - e ky 6 751 15 1,991 ITALY - 1 3 a - - P - ADDRESS KILOS and EXION TOTAL 1,650 & 96.599 6,763 43,798 4,053 35,024 4,985 GREMANT 25% I 16,460 999 6,58% The 10,847 1,30 UNITED STATES 3,577 51 0.58 1,668 33,015 3,504 10,378 3,051 PLANCE 2,932 68 47,596 3,315 - - 3,769 419 MAY NAITAIN 47 1 6,887 127 955 145 BE as ACCESSION X TOTAL 4,798 1,319 GERMANT 185 ¥ UNITED STATEM 3,954 1,099 (Insluded La - Aircraft Amountories) FRANCE 163 35 GERAT BRITAIN hgle 153 ADDLASS TOTAL 8.6) 5,975 GREMANT 6,6m 1,773 UNITED stage 19,500 8,755 (Included is - Aircraft name 2,694 1,837 GREAT - 114 AID TOTAL 8,401 47 10,875 92 2,322 38 1,5% kl GREWANT 780 , 1,99 14 is 4,107 35 UNITED STATES 3,05 a 1,93 R 1,47 17 395 5 GREAT BRITAIN 4,276 to 1,237 11 as 10 58 1 TOTAL 734,766 1,853 357,62 1,447 591,534 3,40 703,10 5,00 communt 198,402 535 99,950 107 05,537 237 875,464 4% UNITED name 344,361 4 214,057 E17 536,097 3,009 191,069 1,07% FRANCE 28,691 to 56,049 250 - 3,543 - - was BETTAIN 107,595 385 20,153 50 15,558 oz. 805,509 1,410 PLOYE TOTAL 03,003 1,153 661,500 1,80% 964,185 1,605 694,172 2,665 - 365,060 5 131,078 16% 102,019 325 232,451 - UNITED STATES 356,007 607 519,271 995 441,166 1,321 625,965 1,661 20639 Regraded Unclassified (A) 1930 1914 1939 1321 am HILOS MM ETLOR NEW use 7,991 a 382 7 5,6g 1,1% , 31 TOTAL court 7,21 2 15 1 - - - . Be 1 366 1 5,630 - VIATES 1,122 2 30 FLOW PARTS 43,60) 104 71,965 142 50.343 16 192,104 & TOTAL court 16.157 36,375 62 15,185 52 z. 14,461 60 To 2,69 TO 183,542 IND STATES 44,583 10 32,804 554 TRACTORE & PARTS FOR AMERICAN a TOTAL 470,953 1,54) 354,903 1,942 428,936 2,606 612,140 5,139 UNITED STATES 333,725 1,102 311,47 1,580 380,131 2,845 511,615 4,508 HERAT are 42,379 99 74,97% 312 7,069 54 47,529 - 39,443 PAY 3,750 a 10 1 30,066 3AM APPLICATION TOTAL 636,257 3 948,420 1,583 438,934 1,291 341,499 1,410 TOWN 360,866 kij 299,911 398 94,949 m 98,294 376 me now 264,199 415 612,113 1,418 26,206 - 220,659 9%3 meur MADETEN TOTAL 193,751 T39 188,262 1,046 364,040 1,236 79,047 556 STATES 161,534 632 175,467 1,00% 333,669 2,913 79,580 55% STEAT SUITAIN 12,179 » 64,216 6 22,552 254 - - REQUEST 4,505 12 3,430 a 3,475 a - - **** LETAL 55,393 455 must 51,176 eys who STATES (Included is Agricultural Machinery unformated) 2,215 196 JULY STAD 1,740 22 FIN AND TOTAL seats 1,610,680 15,782 - FIATES 1,509 56 (Included In- Aprindment - REAT NATTAIN 1,557,669 15,022 44,802 609 79711 am AND ACCORDATE - 1,040,159 4,309 STATES United in - Macking - 342,773 1,053 are PRITAIN 544,769 2,170 152,617 B65 TOTAL FORTH Ka UTERS cup, ADD FRANT 661,108 4,695 Dire PATE aue SUITAIN [Incluted 1a - La - Washing - 304.750 3,80 227.768 913 75,451 299 TOTAL 28,187 ES 75.733 log 234 1 29.95 75% 115 08,025 12 DITE STATE 27,991 1 41 1,173 4 2/435 70,7% 2,273 18 219 27.297 108 13.437 S Regraded Unclassified 73 (5) 1926 1930 WW 1939 m/s Exce - THAN WINDWISCH TOTAL 72,435 15% 39,601 10) 53,701 195 0.44 91 INSTED STATES 38,062 116 38,991 S: 51,729 136 19,50 76 MILLA - DEVELOP TOTAL 505.580 1,601 433,525 1,742 180,05 1,440 66,354 3,754 GREMANT 76,536 272 351,892 1,358 17,200 153 87,09 1,42 SITE STATES 195,604 We 20,006 18 15,00% 135 0,26 308 GERAT BRITAIN 119,163 536 34,027 Leg 65,659 367 41,393 367 1,525 5 T25 10 4,000 . 47,400 357 MAILWAY DATE AND EASURE and TOTAL 39,969,973 44,080 5,323,584 9,994 4,827,232 10,162 1,750 40,380 GREWAFT 2,013,996 6,948 202,807 690 - , 10 5 REATON 28,476,676 28,041 2,569,112 1,88 2,646,831 4,033 1,275 45,253 UNITED STATE 1,125,311 2,137 297.054 391 1,04 9 - 1 - PRANCE 3,959,966 3,675 - - - - - - GREAT PRITAIN 3,403,519 3,007 2,239,885 5,993 2,179,357 6,104 470 25,050 KATTRAT ADDITIONAL - EILOS TOTAL 299,180 2,275 GREMANT 10,463 if UNITED STATES 74,590 (Included in - failure Care 4 Region) 352 GREAT ESTIMATE 159,521 $ XELÓTON 50,606 B TRANSATE AND TOTAL 137,660 758 GENMANT 1,060 à UNITED STATES (Included is - Bailway Dure à Vegas) 57,280 363 GREAT SRITAIN 79,320 300 TMP cass FOR MIXII AND TABLE TOTAL 1,200,442 2,930 REGIANT 8,00 396 UNITED STATES 188,290 505 (Isclude) is - Mallesp Ours a fagou) course RETRAIN 163,002 86 RELGTUM 634,040 1,457 TEXES - M DATE 4 - TOTAL 18,403,679 17,009 5,035,387 7,173 4,879,096 6,803 7,727,930 14,183 GREMAST 2,508,103 1,337 403,098 312 381,687 355 4,40 BELOW 3,226,446 2,079 1,031,938 805 1,598,83 1,391 1,146,237 1,660 UNITED STATES 7,689,264 8,54 1,137,002 1,477 408,337 1,0kl 503,434 1,671 GREAT 4,721,633 4,630 2,159,873 3,719 1,805,977 3,527 1,976,937 5,195 LOCOM/TITYER TOTAL 12,055,647 40,932 6,621,996 13,009 3,136,775 8,179 5 25,618 CURRANT 6,362,877 19,518 612,967 1,6m 001,609 8,168 32 19,794 ONITED STATES 5,400,613 19,141 664,886 3,006 197,155 1,49 6 4,621 CHELLE 476,276 1,638 3,109,914 6,672 677,091 3.995 I 1,003 20639 Regraded Unclassified (A) 1914 1935 1310 1926 ETLOS and The and KIMA ARE FR 560,962 4,0% 125,673 2,079 162,017 1,135 (Inclated is are num 45,773 656 and NAITAIN SCALER 1,252 105,506 5,141 156,949 220,655 1,479 357,000 2,378 350 12,807 249 45,575 May ISSUET 117,105 512 95,406 110 1 13,406 233 29,757 291 1,195 55 IDAIN 60,099 420 24,510 303 47,642 92,906 370 525 are CATE JUNPS - 254,454 1,595 146,590 1,669 297.034 1,7% 4,139 509 49,933 693 147,237 1,516 - 131,50 425 66,453 BITE STATES 151,131 838 76,161 574 27,973 256 70,245 1.137 32,784 496 47,863 261 36,531 336 31,563 267 HEAT SUTAD 1981 ATX 567,655 TOTAL 8,713 142,562 2,313 31°D FATE (Included is Extradic Pumpa) 328,645 4,476 62,213 926 TOTAL 2,575,507 4,627 2,758,500 5,498 1,126,018 4.673 1,516,2N4 5,680 DEPART 380,118 751 65,514 140 94,423 wie 305,455 1,808 mins 303.156 TB4 510,625 2,557 46,351 107 141,265 TOE MAT 1,131,520 1,964 685,128 1,582 966,779 4,102 547,268 3,955 TOOLS (E) - 100% TOTAL 6,133,894 27,101 1,415,60 11,269 1,151,129 14,718 4,430,394 22,309 1,889,903 7.738 650,404 4,96% 420,525 5.774 575.567 9,023 DITED STATES 1,005,522 7,08% 143,809 3,363 312,983 4,578 416,434 5,47% GREAT 2,861,558 9,750 711,061 1,570 257,112 2,258 136,205 1,943 DE, BETES, no. TOTAL 2,743,614 K,Ezo 4,703,537 19,332 4,430,394 22,30) 325,119 in Their 3.075 1,015,679 4,436 1,037,617 9,315 THE RATES 5 130.553 733 355,252 1,960 322,043 2,209 1,624,051 4,566 3,228,260 12,453 2,143,106 10,363 23242 6,131,2% 29,718 7,234,733 26,357 6,329,305 STRACT 44,642 2,407,446 12,059,680 62,478 8,206 800,711 4,966 THE STATES 1,537,331 676,62 17,052 2,439,342 22,479 3,916 2,558,873 10,246 are and 1,309,643 2,868,133 7,156 7,396,344 22,61% 1,259 1,558,106 WILLAND 5,850 1,709,489 166,5% 9,092 328,489 3,854 $ 1,563,109 4,675 65,430 2.391 73% 83,500 1,296 10 7% 4 79,252 248 977,596 3.795 TOTAL HIME A ADDITIONAL $9,156 TRANSY (Included 4m 9,066 606,328 9,651 342,335 7 807 - THE Communizated) Board 4,58% 103,147 we 288,047 5.774 110,52 3,509 217,345 6,980 69,157 3,057 Regraded Unclassifie 74 (1) 1926 1910 1314 1934 more EXICE CURTOR EGGS 2004 DAN à ACCREDITION FOR NDAD N. TOTAL 686,993 7,005 CHEMANT 2,906 & (Included is - Modicary Unemmerated) LIVE STATES 684,087 6,942 All VIEL EPICITIE TOTAL 277,134 2,665 SIGNATURE 57,720 538 UNITED STATES (Included La - Machinary Themmerwind) 142,180 1,514 GREAT EXPLAIN 30,382 294 TOR - NOT TOTAL 1,604,829 24,257 COMMANY 967.011 14,229 UNITED STATES (Insluded to - Maddanry 254,00 5,939 GREAT NAITAIN 117,568 1,302 TOTAL 20,397,702 67,072 11,749,691 67.796 6,805,097 63,978 2,696,816 27,460 UNIVERSITY 8,219,669 29.765 3,492,645 16,078 1,893,239 18,489 982,521 12,158 UNITED STATES 3,485,078 06,205 3,522,170 26,273 2,193,770 26,954 636,151 7,295 GREAT 3,230,743 13,054 2,279,056 11,514 1,523,246 10.753 535,941 3,832 UTA. IN 3,005 - 2004 TOTAL 6,033,156 5,520 3,781,506 3,623 4,229,198 6,370 5,159.079 9,394 ORIGINANT 1,154,66 1,177 782,152 948 1,077,677 2,218 2,429,768 5,374 WELGTON 1,508,370 642 500,795 308 351,052 319 795.745 716 UNITED STATES 991,396 839 362,212 307 217,667 254 267,162 219 TREAT TRITAIN 1,621,085 1,501 1,966,743 1,731 2,187,045 2,563 1,528,411 2,% FIRST PLATES TOTAL 2,273,366 1,335 2,029,720 1,171 2,014,225 1,735 2,967,514 4,42 GREMANT 198,882 76 64,877 $ 367,905 376 624,540 1,178 RELGIUM 299,390 105 557,441 26) 117,930 66 171,876 201 wire STATES 721,427 550 177,066 173 534,795 - 1,119,39) 1,893 GREAT BRITAIN 797.955 490 168,055 599 969,167 720 $39,765 979 195 you TOOLS, AILM, and, m. TOTAL 306,749 1,216 GERMANT 41,416 269 82,342 235 (Included is - Steel and UNITED WEATEN 1,637 34 sur BRITADE 199,008 MS 46,365 117 DES 4. STATE IN DE mm TOTAL 1,276,802 2.779 @ernany 406,339 1,059 (Included in - Stanl and Irea Chammarated) UNITED FLATES 305,593 532 BRITAIN 343,685 - 20639 Regraded Unclassified 1934 1935 1930 1926 EILON will XXTX 100 THE IS was A 3028 8,389 36,378,428 19,95% 30,725,767 16,128 470,255 09,188 TOTAL 11,805.253 622 as 859,415 na 07.24 293.357 ag CNITED mm 588,013 3,355,708 1,635 6,546,303 4,479 13,074,812 10,613 SEPART 12,053,945 3,312 4,550 24,612,417 12,135 14,876,309 vasia 25,682,714 6,578 14,375,940 9,0h1 615 1,629,999 495 1,029,971 ILLAND 2,128,05 547 1,837.90 762 TROY FLATE é 20,250,625 5,950 22,958,055 17,896 28,092,304 10,930 26,654 TOTAL STREAT 1,95% 1,068,574 614 1,516,273 1,247 15,066,372 4,660,362 13,389 6,524 4,535,433 6,933,550 2,512 6,746,112 2,531 10,922,854 3,492 UNITED STATES 5,319,280 4,337 974,329 969 5,222,333 4,710 6,567,143 6,89 use TRITAIN 2,50,58 1,761 2,115,81 1,534 5,022,520 5,228 1,737,688 2,706 them TOTAL 6,212,489 4,692 6,782,332 5,781 6,804,653 8,431 1,166,836 ETO 211,969 163 3,686,562 4,655 (Instated ta- Plates SEATM à Steets) 995,267 50 7,254,501 1,041 103.363 77% TATES 2,740,100 2,447 3,393,491 0,954 2,265,472 2,146 GREAT SECTAIN 1,147,875 193 $10,828 as 137,222 175 DEL in DATE AND TOTAL 13,301,522 14.8% STATE 1,650,789 9.5m THE PATE (factuded la - Iron à Steel 643.392 663 Unemmerated) 3,332,636 3.379 GREAT INITATE 628,387 630 + Fit a CAST DE TOTAL 16,230,589 3,217 1,953,680 51/4 T23,852 W12 499,789 we TERMANT 81,50 217 50%,50 & 70,364 31 151,737 184 and STATES 11,00g 5 1,729 1 26,921 6 - - Mar INSTAIN 5,356,025 1,18) 1,592,278 407 20,455 8 172,720 69 name 4,115,272 126 4,171 19 50,000 45 50,800 67 XEATUM 3,079,729 56 45,585 16 77,120 by 40,640 58 DOB & THE ABAYER TOTAL (Rote) Protably Includes NM fabricated chapes) STREET 8,712,466 6,708 SEATTE 1,924,233 1,64 STATES (includad in - Pie 4. Ours Irea) 4,504,341 3,119 MEAT MAITAIN 1,061,770 667 598,051 435 DOS é ITEM FILINGS TOTAL 82,662 GERMANT 197 23,159 130 44,504 143 RELATIN (Included la M à Cast Iron) 40,300 97 8,307 29. 16,7% TO 15,224 31 one mine 7,957 73 7,421 8 5,687 42 1,561 11 sel e TOTAL DON à ITEM 547,32 437 560,800 113,582 197 574,230 1,279 BRAND c. is The . Cut Ind 74,872 177 64,95% 232 WITE STATES 204,82% 163 304,248 17% 14,504 160,165 179 BRITAIN 35 138,503 234 140,968 W 154,806 103 250,440 153 124,618 167 Regraded Unclassified (9) 75 1986 1930 1934 2935 KILON CONTRO the TOTAL 30,442,486 15,984 21,538,053 18,129 80,750,626 16,209 20,303.98 00,327 SECURITY 12,773,307 6,822 5,139,676 2,097 6,009,556 4,003 10,518 10,013,446 4,099 6,456,561 3,665 4,04,605 3,550 5,307,805 5,0% CRITED STATES 6,189,172 3,344 7,225,079 4,017 8,445,515 6,478 5,537,044 5,04 MOLLAND 572,409 316 2,196,300 1,177 1,86,002 973 341,050 N79 PERI TOTAL 10,213 20,551,11) 10,928 25,621,945 2,18 29,437,594 35.599 GERMANT 10,317,023 5,309 9,589,00 4,991 11,185,141 10,474 15,325,580 21,109 UNITED STATES 1,335,157 783 1,211,572 no 5,664,203 4,5a 4,695,250 4,211 BELOIUM 6,572,291 2,480 4,160,222 2,195 6,187,665 4,893 5,980,803 5,935 SOLLAND 169,596 BD 3,582,069 1,468 1,179,569 990 2,396,981 3,041 DES CORRUGATED STATE TOTAL 12,363,146 11,348 6,324,386 7,213 6,375,851 6,067 403,205 10% DETTID STATES 5,568,928 5,245 3,681,053 3,452 3,657,073 3,405 259,62) 35 GREAT ESTRATE 6,063,227 5,630 3,093.721 3,325 1,675,903 1,752 44,276 6g CERRORATED NR EL TOTAL 4,380,392 5,913 GREMANT and 319 UNITED STATES (Indinded in - Iron delanted Corregated 2,063,524 2,706 GERAT BRITAIN 1,686,175 2,256 DOB à YIKEL CUTLERT TOTAL 539,816 9,439 302,349 6,282 70,714 4,143 192,353 GREMANT 334,367 5,488 277,500 4,035 51,769 3,056 140,787 6,467 UNITED STATES 33,682 1,666 14,464 1,379 8,696 E 17,922 9% names 107,347 1,258 36,541 Sie 3,473 - 2,89 1.00 GREAT MEITAIN 16,496 475 14,227 173 4,081 299 25,997 y OF TIN PLATE TOTAL 55,318 395 34,651 256 31,040 351 37.821 634 GERMANT 25,694 to 17,362 173 10,783 170 15,441 275 MITO STATES 17,484 100 11,170 63 19,331 167 19,796 320 THERAT BRITAIN 7,026 36 4,059 % 632 8 2,105 2, THE PLATES IN TOTAL 16,151,582 14,100 24,165,946 23,193 29,975,566 35,107 31,800,253 58,315 141,629 in 41,697 63 4,769,665 5,503 5,757,629 11,861 UNITED STATES 4,927,705 4,534 3,582,106 3,1% 12,156,044 14,053 10,636,607 18,076 UNRAT SRITAIN 11,074,219 9,349 20,040,279 14,925 6,346,00% 10,628 5,593,365 9,506 HOLLAND - - 2,513 2 3,750,663 4,326 5,861,062 12,995 READY - = 3,220 2 903,260 1,011 2,655,477 4,941 DES ------------------------- FOR TOTAL 15,870,548 7,645 12,154,419 7,943 9,671,050 4,546 10,865,254 15,726 DERMANT 3,147,322 1,807 468,469 212 943,060 657 5,480,696 1,011 RELAIUM 5,644,602 1,528 5,120,602 1,986 5,117,018 3,60 3,376,116 2,550 CRITID STATES 1,951,799 1,75% 3,305,967 3,735 163,148 216 1,567,426 2,312 GREAT BRITAIN 1,564,203 1,197 1,943,625 1,397 312,475 196 106,388 X 20634 1938 1939 no) 1930 1926 now, you 452 STATEM CIFICE EILOS was Sma as 22,450,806 0,80 2,199,947 18,579 28,795,317 52,159 TOTAL NO,198,649 27,293 7,730,507 6,065 4751 3,075,307 5,159 8,300,154 2,00,353 17,00 TRAUT 7,240,572 4,799 8,091,315 7,962 6,794.60 MAIN 5,646 3,005 5,202 3,995,303 5,663 2,801,257 DITE PLATES 5,341,909 1,346,74 6,567 5,107 5,60 4,188,647 6,469 4,585,096 auf SETTAIN 5,856,144 4,770 6,861,627 7,373 1,040,969 55% 1,18,745 1,300 1,945,179 2,553 2,412,135 3,613 name of Less à time). 204,369 90% TOTAL 159,545 NOT ISSUET (Included is - Non, Piges à Juinings) 1,680 M. SETTE STATES 6,050 are RETRATE 70 DER - CARRYTOR HEITE ESTAL 2,753,493 5,60g 90,60) 2,297 (Incinéed la fates, Plyne DITE mane é Julsings) 2,035,653 5,876 16,00 TO GREATE AE MEW TSTAL 127,600,397 NM,964 54,177,094 26,605 51,179 53,669,500 45,352 - 9,252,157 4,312 1,313,039 452 2,38.21 13,650 7,100,75% 5,902 Miami - . - - - - 14,601,756 10,737 DATE RATE 9,646 1,065,147 4,985 51,303,901 08,325 5,763,336 5,427 VELOTON 56,169,883 16,594 16,754,552 7,014 7,859,934 4,511 13,07,908 12,918 UNIVERSITY 15,097,978 4,457 04.05 309 558,726 age 5,445,294 MAS aur SERVICE 9,493,113 4,976 27,076,857 13,405 2,20,49 2,125 6,835,907 5,99 A WITHIN TOTAL 1,535,255 2,576 (teriated is - falls, Platiplates à Ballway Accessories) 350,555 539 - 244,677 313 SIVE STATES 9,483 15 THE I term 200% à PARTS FOR BRIDGES & me - 7,462,86 7,397 11,459,914 13,000 2,60,587 4,00 WITE STATES 550,282 973 3,791,660 3,200 1,470,771 2,361 59,080 112 STATE name 20,457 in 1,046,129 2,10 3,598,992 4,631 $1,027 FILMD 56% 329,938 519 195,000 in 761,282 577 109,700 70 92,7%0 161 OF INN & FINE - TOTAL 12,932,014 23,900 14,920,157 27,615 HOURT 1,225,12% S.1A 2,999,301 15,778 6,572 2,269,765 5,758 1,774,206 1,375,595 5,577 1,086,343 6,929 901 1,367,082 Dire STATES 1,0% 1,437,632 1,80,00 2,00% 7,318 03,074 590 6,828,999 and 12,378 2,828,97% 8,319,396 6,150 4,633 772,050 3,685 2,578,572 4,676 2,066,202 5,164 641,632 2,965 TOTAL 3,786,179 5,007 court 3,682,928 325.09 3,910 DITE TATX § 1,396,60 234,387 7,416 7,941,779 11,257 1,723,972 2,401 303 123,830 184 PATTAIN 769,943 you 725,429 752 99,592 - 1,009 $11,013 1,374,570 1,151 76g 1,932,706 2,678 203,430 PAID 253 162,648 1,812,775 1,095 605,383 199 509,358 936 They 2,095,518 1,650 1,532,404 1,860 2011, 1,560 2,45,06 2,007 3,174,248 1,00 Regraded Unclassifie are 76 1911 1930 1934 1935 - as IN NM. DON. & TATE 1976 423,753 4,109 540,150 4,330 750,961 11,800 704,549 15,059 CRIMIT 40,337 446 20,315 101 23,83 365 11,459 260 UNITED 11,030 36 102,062 718 11,305 14A 16,778 221 our INSTRATE 337.552 3,266 370,924 2,699 566,209 4,539 471,193 9,563 COPY PLATED 5 TOTAL 1,739,750 5,458 1,334,335 5,83 2,053,487 7,400 9,353,553 19,096 914,96 2,096 $1,959 1,512 468,152 1,861 2,555,494 11,714 GIVE TATE 55,642 226 25,666 156 11,00 59 3,580,691 11,760 HELGIUM $4,414 B $2,62) 317 105,397 361 361,584 1,157 PRANCE 200,664 600 24,675 101 18,871 R 24,573 119 GREAT BRAD 371,253 1,162 684,705 2,610 1,Maz,429 136 774,595 156 FILINOS, mg. 10 TAB 3,637,131 9.231 2,197,007 8,570 4,533.565 11,737 004,556 2,790 i 507,790 1,155 122,738 317 355.211 1,011 5,266 33 STATE 2,658,035 6,411 2,351,991 5,944 1,293,381 3,415 706,9k1 2,00 GRAP EDITAIN 308,204 1,009 199,615 1,009 953,775 2,64 51,16e 334 E ( RECEPT ELECTRIC WIRE) TOTAL 247,046 Ao 115,617 555 106,505 in 31,552 609 UNIVERSITY 75,213 8 27,661 174 53,395 355 49,867 476 UNITED WEATH 35,640 168 17,372 99 1,909 36 1,547 33 GROUP BRYTAIN 50,080, 177 43,436 175 31,632 us 11,188 57 DEPARTMENT with TOTAL 695,076 4774 777,205 3,470 203,563 1,23 144,993 2,304 HEALTH 148,905 493 150,289 no 25,127 21 110,429 691 WESTEN 78,059 192 139,122 512 116,233 265 50,487 16 wind STATE 197,477 997 184,959 1,22 33,259 497 51,289 #93 GREAT 60,223 343 163,388 670 16,244 110 26,628 271 OF TOTAL 535,689 6,453 512,409 1,072 206,363 5,391 110,939 2,860 170,541 2,509 127,00 2,209 63,262 2,563 47.796 1,255 UNITED STATEM 126,958 1,668 170,595 2,057 61,366 1,296 39,978 $ nad €5,353 P5A 5.00 56% 4,150 198 1,720 169 RUS NEITADY 57,50# 1,009 116,594 1,694 35,141 Sio 11,018 306 RADIO * TOTAL 210,343 5,448 4,932 30 122,054 9,100 UNIVERSITY 28,339 892 138 z. 9,155 1,802 UNITED STATES 138,645 2,936 as 15 9,536 617 (Included is - Machinery REAT SIGNATURE for Electricity a Electric 32,054 1,018 2,128 333 45,380 3,411 Light) WILLING 2,522 33 2,456 32 37,250 3.333 TOTAL PADIO ATTARATUS 677,987 17,153 740,122 36,208 EMEMANT 12,830 5d 36,393 1,931 UNITED STATES (Included la - Sadio 530,529 13,983 479,335 21,000 and REPEAD Apparatus A Attachenets) 10,775 921 22,364 2,345 MILLARD 121,585 1,676 100,969 9,127 20639 Regraded Unclassified (12) 1994 1919 1938 1923 RW **** KILCE 2018 NONE was 8,496 1,8% 15,284 1,800 TOTAL 38 110 303 any STREET 7,554 1,508 12,258 (lackuded to - tadie gnaratta à 2,996 STATES 169 158 IM6 256 MUST VALTAIN 237 30 1,962 3 BILLAND RADIO ACCISSORIES GOVENTS 14,20 3,001 138,414 6,00 TOTAL 15,223 792 12,7%] TM QUINANT 44,626 1,797 95,194 1,00 CETTED STATES (Included is - - Madio Apparatua à 3,673 206 17.722 HEAT NATTAIN 24) 9,864 230 10,005 die NOLLARD name: 718,993 8,023 1,140,289 TOTAL 17,141 19,921 226 s,6ka the are STATES 680,436 7,513 1,036,056 15,5% (Included to - Maddenry for Bestricity & BEITAD Esciric Light) 2,638 43 27.20 398 MED 1,428 18 54,463 725 REPRESENTATIVE ACCESSORIES TOTAL 131,403 1,708 THENANT 290 17 - STATES is - Mochinery for Electricity & Electric light) 42,784 1,138 GREAT SETTAIN 87.160 507 main VALUE ATT CERTIFICATE A TOTAL 147,321 2,122 SEPART 1,953 by TEACH In - for Exctricity & Light) 2,365 % UNITED mans 120,650 1,833 name 4,563 50 MARKET Na à MAIL TOTAL 4,709,250 33,782 4,357,686 51,68) 1,850,502 request 42,507 1,588,797 52,141 5,900 739,179 6,382 487,443 7,709 336,301 6,031 76,856 de 404,968 9,148 209,638 DITE STATES 15,954 2,131,474 109,006 2,361 17,0kc 2,051,183 22,254 nan 577,946 10,515 131,157 547,923 17.58 1,005 79,770 1,143 THEAT NAITADE 11,931 670,190 939 4,002 sos 5,775 555,013 6,355 220,037 15,477 3.739 172,244 3,725 128 128,0)t SEE 1,832 1,091 72,982 35 2,654 127 731 90,344 1,947 111,604 2,116 21,898 602 TOTAL to MATTER 4 E-ECTRICAL FOR NICAL TXP STREET 164,560 3,810 wire STATES (Iscluded La - Mathinery for Excirisity & Dectric 11(ht) 37,485 1,005 sew, 57.073 1,770 Regraded Unclassified (13) 77 1986 1930 1934 1933 KILOS EILOS ELECTRIC AND TOTAL 1,280,917 6,160 768,005 6,995 635,740 1,796 8,134,425 27,585 commit 476,286 1,670 222,176 1,525 227,68) 2,675 634,997 10,721 UNITED STATES 461,050 2,641 284,142 3,152 10,399 2,MI 456,636 7,009 SERAT SUITAIN 52,501 579 89,750 765 128,865 1,17% 117,867 1,800 I 60,009 INT 67,389 378 05,376 - 526,602 1,98 à 798 R TOTAL 47,399 4,00% GIRMANT UNITED STATES (Included la - Marktaary 9,kcz 382 13,043 1 5% GENAT BRITAIN 1,406 If E 57,006 2,9%) ELECTRIC LIES TOTAL 112,525 4,590 132,811 6,409 119,666 3,615 95,313 3,151 GREMANY 42,677 1,492 77,005 3,2kg 19,079 1,358 2,Wg 37d VEITED STATE 8,320 347 12,284 314 1,670 185 1,78 3m HOLLAND 37,705 2,17% 35,709 2,44 165 60 30 10% as 107 3 3,936 143 90,4am 1,464 43,952 1,650 RES 50 1 - - 5,803 30 5.005 372° MOTORA TOTAL 1,905,582 5,252 1,025,662 7,574 590,34 6,199 780,600 10,060 CHEMANY 583,115 1,033 118,91 168 88,132 1,347 211,751 3,129 UNITED FLATES 346,252 2,396 372,067 3,221 103,315 1,456 197,525 3,196 GEBAT BRITAIN 231,211 1,385 185,926 1,490 131,569 1,585 172,742 1,928 i 129,492 479 73,570 305 129,950 520 4,54 a TOTAL 1,317,156 5,049 2,317,164 11,203 395,311 2,917 $91,420 9,653 310,105 722 197.594 98 67,946 22 250,526 3,075 UNITED STATE 636,817 3,313 1,427,622 7,750 183,386 1,033 191,903 2,04 GENAT SUPPLIER 114,213 599 454,451 1,9% 74,909 bye 27,050 1,978 I 56,326 22 125,437 606 112,112 Due 134,367 919 DIY e STEEL TOTAL 345,811 1,535 26,336 1,3ki 58,126 TAT 41,214 Way GENERAL 41,257 131 27,045 104 3,185 W 19,951 -70 United STATES 180,647 #93 212,269 1,212 50,716 The 21,156 365 GREAT BRITAIN 09,295 400 1,904 9 18,451 156 3,255 a STEEL ASCRITION A CARD FILM TOTAL 39,453 911 COMMANY 82 1 UNITED STATES (Included la Iron & Steel Pursiture) 20,538 450 are 18,113 - NAME TOTAL 286,424 6,976 110,636 3,498 190,072 5,252 23,233 14,051 UNIVERSITY 30,567 The 43,277 & 29,096 1,505 55,447 3.732 UNITED STATES 226,671 5,705 9,102 2,58 147,970 7,162 129,700 9,018 20634 (14) 1934 1935 1930 1928 couros me me STATE MAI ne CALCULATION 4,157 63,677 5,994 59,225 7,5% 114,053 10:11 9,604 52 8,540 1,142 1,725 37,019 - (Mid (s Department) 76,607 1,008 56,890 4,872 1.09 ame STATE PRESICATIONS à MACKIER 106,942 6,653 10,679 675 AMOUNT (Included in Machinery 19,905 5,6kg NITE NINE noss, PRINCIPAL MAZE, INC. 912,391 4,775 671,353 4,459 401,620 6,458 406,950 8,035 TOTAL 39% 154,146 The 26,476 572 23,375 569 COMMET 16,407 are state 85,60 1,275 111,403 794 65,68% 1,127 85,732 1,350 16,406 1,246 210,348 1,362 50,534 943 38,609 1,254 nos É - 40,503 NO 41,464 5. - 1,000 STATE 41,457 9 32,542 les 39,952 1,013 50,435 1,315 17457 PAINTE MATTER CALIFORNIA TOTAL 393,736 2,174 522,347 1,69 155,121 1,914 114,655 8,1ks 17,14) 419 27,298 307 7,148 SECURIT 307 10,780 462 DATE STATES 178,917 967 320,412 2,139 106,372 919 75,9%1 6,758 GREAT ENTRAIN 84,676 las 96,02 509 5,129 6,864 ess name 21,562 LET 15,958 222 16,834 no 6,685 We 100 TOTAL 4,406,315 8,224 3,323,624 1,637 2,535,906 7,707 532,537 - TENANT 1,271,193 2,50 1,013,498 2,672 335,015 1,766 56,683 506 0150 name 372,059 1,185 489,660 1,513 1,109,033 2,3% 222,780 775 yes 5280014 & OFFICES ISTAL 297,20 3,217 265,824 1,12% 234,236 4,670 99,214 1,116 TEXAST 105,301 4,539 96,950 1,144 60,597 1,962 17.493 50% am STATES 52,685 182 54,957 780 25,272 1,449 9,604 298 TOTAL 1,909.365 12,200 7,631,430 21,384 1,892,054 25,009 2,580,240 45,337 DEPART 359,551 3,749 1,050,162 9,168 601,122 7,663 050,385 11,051 are name 1,085,1% 7,182 1,546,136 11,425 1,064,531 14,07 1,052,00 14,69 CARADA - - - 198,374 2,065 613,479 10,562 CREDITOS TOTAL 100,371 778 58,577 574 TRANT 5,987 20,956 67 6,473 1/wo 233 5,258 59 472 11 497 a - VIATED 19,690 142 28,110 340 1,987 17 2,963 50 nas 10,072 220 1,459 30 121 to 433 a or NOOD TOTAL 406,572 2,069 382,502 TEXAST 1,458 71,661 354,873 562 2,190 299,50 2,647 39,091 - the 231 67,611 25,250 152 12,055 393 31+ 179,345 me minus 165,278 35€ 19,252 195 15,700 ass ego 7000 59,00) 3,613 307 42,859 25 5 34,069 273 34,530 sing 23,759 1,067 222,572 1,00 Regraded Unclassified 78 (15) 1926 1250 1934 1935 KILOS CONTOS EILOS CONTOS EILOS CONTOS KILOS CONTOS MOTION MACHINES TOTAL 29,186 422 31,277 62% 11,519 559 9,498 1,001 DEPENANT 22,571 249 16, 370 8,544 385 5,040 548 UNITED STATES 1,111 68 11,063 419 1,264 66 2,452 241 PRANCE 4,350 77 3,330 34 - -- - - HOLLAND I --- 31 1 1,567 45 1,347 145 NOTION FILMS TOTAL 37,606 4,320 29,497 2,739 29,657 7,494 54,726 9,102 DERMANY 1,415 57 3,002 314 2,046 1,164 3,816 1,979 UNITED STATES 32,711 4,064 25,036 2,234 25,147 4,795 27.693 4,942 PHANCE 2,572 119 668 116 1,359 601 1,402 1,036 MOTION SOUND APPARATOR à ACCOMBORIES e TOTAL 750 98 GENERANT 316 33 UNITED STATES 192 he MOTION PICTURE TOTAL 4,454 79 5,627 210 2,102 113 4,033 329 GERMANY 1,608 19 1,974 78 1,126 68 2,727 196 UNITED STATES 510 23 2,965 110 734 32 532 61 HOLLAND - - - - 208 11 436 35 PROTOGRAPHIC APPLIATUS & ACCESSORS TOTAL 327,055 4,182 24,473 1,046 15,488 1,043 26,202 2,634 GERMANY 116,369 1,432 15,943 359 8,915 766 11,279 1,705 UNITED STATES 47,498 1,412 6,626 230 4,788 256 14,403 823 FRANCE 49,800 667 1,539 Web - - 17 3 DATE PLAYES à SENSITIED FILMS, not EXPORED TOTAL 217,508 4,053 261,972 7,536 219,337 11,282 GERMANY (Included in Photographic 150,455 2,405 151,605 4,596 153,171 6,898 Apparatus & Accessories) UNITED STATES 17,856 1,133 44.646 1,575 44,860 3,212 PROTOGRAPHIC PAPER TOTAL 106,70B 1,589 81,806 2,549 109,505 3,868 ORDERANT 20,527 483 31,510 1,371 29,272 1,441 (Included in Photographie UNITED STATES Apparatus & Accesories) 35,770 705 23,269 552 29,117 932 BELO IOW 31,709 202 17,268 388 38,009 1,022 20639 Regraded Unclassified (16) 1934 1930 1935 1526 CONTRE CILON unless POR MARKET 27,515 663 TOTAL 2,043 by sitil E (Included to Sot Specified) 10,213 25) comunt and NATURIAL MY 4,171 136 TOTAL 3,903 (Included 14 - this ant Specified) 120 UNITED not 286 and 19 me KATETA FOR à TAXICO 139,666 20142 1,12 (Included la 4 Richer Sot Specified) 92,704 OTHER entre 542 are RETAILS 20,046 183 TOTAL 7,637 537 UNITED men (Insluded to the set Specified) 4,829 200 STREET 1,373 144 EA TOTAL 20,103 99% DITE STATE 6,705 (Included la - buter not Syncified) 255 DENUT 10,201 538 TOTAL TOTAL 33,272 1,017 25,861 933 20,915 598 19,404 BOX TRUST 13,00 460 10,107 120 1,6t) 63 2,525 10g DITE crans 4,265 159 3,407 139 5,251 255 5,226 337 me MITAD 1,0% 29 10,270 136 8,560 273 3,642 as SHIPS à 20079 CETAL 18,609 29) 37,607 531 35,595 % 24,756 629 4,125 a 14,093 as 16,354 362 15,185 43E CERTED non 10,695 19% 15,769 179 6,598 12 4,317 102 CAR TIRES 4 THE (THER TRIS ONLY) TOTAL 3,225,102 29,679 3,226,260 24,446 3,290,345 26,119 DIRECT 183,368 2,092 9,286 70 16,906 118 13,362 The CARADA 3,340 57 205,600 2,067 181,050 1,345 # - CENTED STATES 10,396 308 1,800,001 10,126 2,223,691 16,305 1,777,000 nas 12,353 102,448 1,137 1,194,918 12,892 43,010 152 100,184 GREAT 1,00 15,872 pce 418,022 4,297 400,8% 3,35% 759,936 THAT 4,904 40,112 433 29,033 192 274,638 2,260 466,517 4,60 9,508 135 SEXT TOTAL 56,643 556 76,802 one TATE 594 24,958 20,628 305 5.00 NYA 176 35,498 232 TREAT MITALY 5,5% 23,361 63 10,350 15) 216 32,ml of 17,036 150 15,351 5% STATE TOTAL must 1,852 47 3.995 16 4,926 129 WITE non (Included la 569 LE Net Specified) 1,001 22 578 15 GREAT Bitter 0,578 40 1,107 as 3,204 76 20024 2,245 31 1,052 DI 772 a Regraded Unclassifie an 79 1986 1930 1934 2933 Ence MAY THE ED/28 KILGS XETOS BOOK TOTAL 109,047 1,033 125,972 1,067 97.506 1,065 65,434 2: COMMUNITY 38,093 391 11,635 187 6,405 117 7,985 a CRITED STATES 44,654 413 70,332 657 66,329 603 48,436 603 aur SUITAIN 14,527 93 24,775 157 20,500. 205 4,158 64 SOLD THE TOTAL 269.726 1,021 62,144 as 33,050 129 17,042 131 WEATES 192,600 TM4 48,779 157 15,094 WE 9,330 6€ PREMATIC TOUS TOTAL 3,440,468 39,705 TOTAL 88,356 1,485 num 235,529 3,869 (Included is - Instr Tubee & Three) INITED STATE 1,896,828 20,252 HEALT BRITAIN 630,682 6,606 TTALY 272,941 3,056 WEATTM 85,910 1,492 OF DATE - - TOTAL 227,854 4,026 205,981 3,774 157,428 3,770 62,533 1,820 CONTACT 43,726 1,190 36,500 1,077 40,709 1,340 18,422 801 VEHICLE STATEM 78,456 98% 96,065 1,181 63.737 915 27,574 435 nas 35,122 66 21,152 635 4,742 382 2,129 ELÉ sur BRITAIN 45,852 779 35,me 5A 21,883 50) 3,900 143 TEAM 17,120 320 11,701 35 15,272 NOS 2,441 79 COTTON TOTAL 1,627,321 22,836 956,821 15,267 1,390,644 23.233 1,229,021 36,742 SUBMARY 79,673 1,160 28,24d 407 2,730 107 6,259 lego UNITED STATES 343,455 5,433 39,2hg 800 #7 9 417 & mare NATTAIN 1,119,165 15,450 $57,108 13,20% 1,344.775 20,395 1,191,853 34,800 TARK A NA TOTAL 250,303 24,114 $34,029 32,443 772,578 63,849 486,969 NO,00% 13,785 762 34,556 1,358 18,743 1,822 53. 11 UNITED TRATES 21,001 2,464 36,592 4,356 90,117 5,051 101,563 5,758 name 196711 1,757 75,352 5,822 91,901 4,002 13,171 1,94 ITALY 160,152 15,70 167,272 14,962 416,730 14,642 277,009 23,372 7,2% 598 57,470 3,550 133,725 5,987 20,798 2,153 ONE TEXAS FOR WRATING TOTAL 254,218 6,299 423,968 13,173 SEDUCT 40,30E 1,0% 70,708 2,5 UNITED STATES 9,161 R 4,108 as (Iscluded is - Bilk Tara a Thread for Twering num 55,628 1,673 159,660 7,392 à Intersidary) TRADE 70,131 1,743 161,359 2,551 18,948 506 16,996 yas READIN 23,639 legg 2,528 179 heave. 1934 1935 (M) 1930 KILOS - may IIIII me non OR amas 154 26,704 8,055 8,557 309 5,008 e 1 0,46 2,014 - num (Instadad is - Tura à for & 10,639 30) EMP 6,458 mail a missing email BILE THE POR 1,961 E TOTAL 1,500 an 1 343 o (Included 10 Bilk Tara é Thiread for varing e non 10 E GETAT SUITAIN un or SGA not 15,367 $ TOTAL 18 y DESCRIPT (Instuted la silk Term & thread for Fearing a 3,040 35 - new 7,154 BE num 5,000 * ITALT VILCIOTE 102,400 1,447 04,853 33% 87,366 609 TOTAL 1,307 No 2,863 must 19,778 en 7% NE STATES 44,512 545 16,466 - 16,389 389 auf MITAIN 31,217 352 6,100 u 8,758 " una KCOL STATE TOTAL 1,343.76 19.794 146,933 3,600 47,103 e,oup 13,043 Toy DECLART 24,360 403 6,570 m 1,674 a we X DITE STATES 22,752 533 12,604 5 336 5 me 5 num 16,181 985 16,217 na 372 19 % 54 REITAIN 1,156,322 16,514 $6,392 2,064 23,103 69% 1,60 432 2009 BOODE STATE TOTAL 46,123 535 15,601 the 3,697 % 17,763 30 INSURT 17,381 as 7,093 92 234 If 162 38 DATE FIATES 4,092 33 1,569 10 5 - , name 1,746 a Mg 14 as 7 38 E and 0,82 250 6,510 109 3,8%0 V1 17,541 you name KODE 19711 521,845 13,743 132.155 6,447 29,346 965 14,412 574 STRAIT 7,458 22- 9,677 46y 1,508 117 303 as CENTED num 100,788 3,178 47,342 1,503 way 14 451 10 nax 53,636 1,507 39,540 1,376 1,725 63 MI # MEAT 358,916 8,127 72,338 407 13,618 469 9.699 415 - XII 20761 4,755,100 $5,978 793,782 17,009 250,457 JENUST 7,404 17,46 2,991 53,520 1,337 35,490 UNITED - 1,85 100,125 20,204 E 11,430 577 1,8M 29,950 SIZAY PATTAIN Tao 4,096,104 319 , 198 if 13,601 513,19 non 9,074 232,998 10,281 4,05 47,967 1,508 4,570 52,007 1,321 July 8,800 513 1,00 19 Regraded Unclassified (19) 80 1926 1930 1934 1115 KILON me TIME me corros 10008 - EVI. extre TOTAL 651,970 12,585 109,687 4,271 156,227 4,842 15,851 2,103 SHOULD 60,418 1,585 26,198 706 22,344 1,135 18,389 1,054 was STATES 78,905 1,872 32,714 454 38,440 951 45,636 T25 name 94,342 1,915 26,574 745 3,486 yes 2,420 147 GRAP DESTAD 275,782 5,566 62,912 1,375 69,650 1,574 13,897 300 NOTTON resure TOTAL 66,179 2,575 GUEMANT 9,506 513 UNITED STATES 14 1 (Indiudet is - Datton Plana Snote - Int Specified) nas 2,652 164 GREAT BRITAIN 10,452 6: & una MIXTURE TOTAL 62,001 2,015 DESCRIPT 2,902 59 UNITED STATES 5,349 23 (Included to - Cutton Fince Goods - No: Specified) 50 58 BRITAIN 47,573 1,40 TESTILE MARIACTURES - N serve TOTAL 574,06) 9,627 20,04 5,665 234,457 4,508 J1,641 990 GERMANT 65,404 1,218 55,568 1,135 19,459 1,129 11,795 342 une STATES 146,902 1,912 41,615 694 138,305 1,702 11,213 338 TRANCE 66,924 1,192 719 3,008 L65 107 70 GREAT HERTAIN 235,817 4,568 101,608 7,510 49,806 1,134 5,130 160 MANUFACTURES CP COTTON è BURRE & TOTAL 266,540 4,425 SERVANT 17,199 209 UNITED STATES (Incluist to Tertile - Not Specified) 156,060 2,677 SEXIT TRITAIN 37,172 665 2019 51,137 621 TOTAL 735,470 2,115 632,778 2,030 671,015 2,156 438,901 1,856 UNITED STATE 373,000 393 294,683 #93 293,429 945 275,227 1,158 auf BRITAIN 199,382 697 203,196 766 254,479 574 101,766 432 SECURITY 70,372 25 71,958 242 38,855 337 49,152 219 TOTAL 158,551.568 61,301 279,495,146 139,173 264,665,648 56,668 276,328,461 132,662 UNITED NITATION 120,704.059 69,834 128,215,126 81,5% 115,950,964 45,925 129,221,200 14,825 WEETCO 30,907,459 14,418 53,044,748 23,966 43,369,548 13,663 26,425,140 13,000 PXHIT I 1 72,337,672 62,132,194 20,323 67,264,931 04,040 WTCH ASTILLES I - - - - - 50,435,339 19,267 GREATES & TOTAL $42,300 462 930.430 1,209 1,150,745 1,50 54,222 1,086 UNITED STATES 727.895 706 772,188 340 1,108,870 1,465 350.28) 77# GREAT SATTAIN 54090 - % 48,072 TO 14,351 37 12,079 39 MEXICO . , 64,252 as 26,975 41 150.700 145 Regraded Unclassified Im 1933 1906 and unos male and THE - and INVER 201 204,143 & 1,734 10211 16 196,77) and 374 now (Inatuded is - Discript Dranses à gysthells Interionals) 1,756 in auf 3,667 19 e COORE 90,465,355 16,192 93,368,633 48,270 93,848,726 65,423 11111 $1,000.052 40,559 65,465,619 35,850 78,350,495 38,234 67,524,093 51,069 ETTE mail 76,673.596 35,80 5,001 9,20% 15,181,609 1,364 16,587,798 19,053,284 10,879 - 11,919,018 1,00% 7,578,365 1,3% $,180,001 1,302,974 2,533 I your - OTLE - 25,205 2,50,277 27,399 51,304,091 21,605 34,550,427 45,236 will 20,172 0,187.00 28,716 28,023,153 8,38 30,889,197 40,855 BITE rune $10,635 972 1,107,516 1,304 1,179,175 1,758 1,153,514 1,526 auf 3,005 1,869,734 $ 2,051.079 1,398 2,48,84 2,202 - 8,560,713 MINTRAL one 4 . INSURATION k1,dey 154 TOTAL Instruded is - Interisting Dila. 24,477 66 0.00 new 15,612 67 seuf are DILS NOT REDIE 661,223 678 TOTAL are name and, NAS 327 me 15,146 30 [Instadad la Interizating other - 11,305 11 CENTRAT 400,000 5 FILE on TOTAL 21,594.96 0.45 376,456,577 42,198 651,960,181 49,760 436,722,496 64,022 - - 72,752,678 3,265 35,027,576 7,445 2,319,547 309 12,079,974 3,478 - 9,357 2,314,30 1,1k2 113,285,256 12,496 185,976,398 18,561 E 45,729,607 4,650 19,38%,520 30,613 , - - - ANTILLIN - - - F 325,565,623 34,415 290,114,351 40,600 PRATE E 1,078 300,873 1,004 792,787 1,233 1,114,053 2,178 DIVE - 091,536 1,027 134,70) 58 778,017 1,1M 1,103,709 2,134 are MITALE 12,MI 25 50,182 52 10,457 217 8,615 EL - PHYSICIAN AMERICA 2,376,190 1,453 24 IDIAL 1,771,906 111,027 1,745,625 118,526 1,079,549 0,795 1,314,692 136,338 amount 11,757 725 5,998 W)1 69,072 5,156 196,452 02,772 INTER FATE 1,085.071 70,005 196,159 13,482 92,016 and BIRD 6,787 70,996 6,575 651,063 14,95 1,362,352 BELLAND 92,975 686,746 99,194 651,947 69,921 3,725 19% 169,396 10,6m 20639 225,528 17,134 333,245 29,60) Regraded Unclassified 81 (a) 1926 1930 1934 1935 IM First ELLOR Not - NAME can TUBE 2211 MI TOTAL 396,322 w,419 384,503 47,205 125,700 15,317 114,154 17,351 GREMANT 127,126 14,057 73,105 9,609 11,978 2,557 60,578 9,343 BEATIN 63,562 6,566 $5,065 10,134 17,255 1,733 18,854 2,405 COMMANY 66,927 7,107 13,900 9,085 12,232 1,650 4,122 an THE STATES 2,15% 679 2,591 1,009 2,29 as 751 Wells SUITAIN 36,50 4,439 45.507 5,440 42,047 4,355 18,656 2,519 MORWAY 11,925 1,396 1,340 154 5,743 798 508 71 I 49,561 5,300 55,968 6,257 18,751 8,167 2,910 4ap taxas 4 INDITIAL TOTAL 81,760 3,393 94,517 4,156 116,675 11,672 55,099 9,251 15,474 639 20,545 769 21,624 1,546 23,553 1,575 UNITED STATES 10,599 177 11,660 251 30,956 473 2,580 3ar PLANCE 35,482 1,713 23,330 1,905 12,821 3,630 12,277 3,12% GREAT EXITAIN 9,489 353 11,750 467 23.770 2,810 12,810 1,624 BULLAND 3,696 178 20,236 329 5,082 7wo 3,561 484 TOTAL 1,620,893 2,621 2,062,043 2,745 2,227,399 3,319 001,646 1,882 GREATE 1,639 7 134,200 132 1,586 7 2,777 13 UNITED STATES 1,541,674 2,525 1,884,117 2,473 1,534,111 1,254 354,672 1,300 auf EXPIRATE 31,601 72 23,224 50 6,785 26 1,290 € OTHER TOTAL 2,283,909 4,39% UNIVERSITY 79,072 445 UNITED STATES 2,096,785 3,353 Included in - Purpentine RELGIUM 81,279 Wo are BRITAIN 22,987 66 DILATED & not REGUE TOTAL 30,044 2,250 HEART 4,364 458 UNITED STATES 4,858 477 Included is 9 Artificial Insurance & Besential Dila TRANSIT 3,536 716 GREAT HEITADE 3,805 331 UNITED - recessize THE TOTAL 336,878 4,437 326,158 7,80 650,716 36,123 816,430 54,551 180,375 1,6% 24,706 621 28,799 1,925 106,311 7,438 UNITED STATES 44,452 411 24,255 247 90,093 1,89 133,273 3,577 WILLAND 80,563 905 197,870 5,099 324,635 22,500 379,510 32,914 60,583 1,270 46,001 1,308 99,942 6,332 102,514 9,045 FLUE PAINTS N KEALS & METALLIC TOTAL 338,444 1,495 GURNANT 29,156 18) STATES (Included Is - Painta 130,282 N57 MILLED 127,695 573 STITECHLAND 45,000 206 20639 Regraded Unclassified 1935 1930 1926 contact KILOS any mos - THE NAME 249,993 1,374 155,477 1,298 121,42 1,053 331,142 1,821 TOTAL 71,040 WEL 104,425 539 72,380 537 103,0io an 0100 CATE 17,2% 503 37,363 E6 03,699 5 116,609 574 a 14,641 Via 12,076 D43 auf 17,460 I 14,613 PAINTS service 1,051,372 5,613 5,433 #57.029 5,2% $6,181 1,327,403 764 TOTAL 2,732 579.355 1,230 495,036 3,547 47,142 way DOTE rate 659,370 1,455 280,696 1 31,23 542,750 151 are DATTAIN 370,998 2,079 euro 1,148 4,000,019 1,515 10,800,066 4,190 13,694,457 6,966 TOTAL 3,972,801 210,40) 8) 636,463 237 1,448,033 775 2,086,541 1,498 SERVARY 2,609,79) 50 1,325,499 400 2,504,786 988 749,013 374 and new TEALT 1,072,981 Sill 1,481,513 493 290.507 172 2,182,770 she - - 5,770,461 1,819 7,890,626 - 3,604 and - KID = TUE TOB TOWN LUTAR 17,172 14,62 18,740 13,541 13,457 11,429 6,740 9,312 INITED mind 17,670 10,530 18,490 13,309 9,412 7,139 1,600 9,019 CASETIC KIA ESTAL 13,271.309 10,226 17,683,331 14,395 23,470,351 25,213 23,112,675 30,582 STREET 1,720,983 1,030 634,506 41) 59,749 128 506,168 1,053 19170 STATES 2,605,279 1,463 4,003,414 2,938 8,148,234 7,156 5,677,940 6,592 use SHITAIN 8,615,743 6,933 18,937,637 10,968 15,267,681 17,909 16,103,232 08,153 were TOTAL 208,940 for 154,35% 309 305,417 580 373,621 1,431 SERVICE 16,759 3ª 12,65E a sole 6 21,393 $ DITE STATES 10,28 520 127,98E 293 298,000 763 342,005 1,235 4,341 E 7,360 15 13,557 61 8,459 75 CERTICAL PRODUCTS - TOTAL 12,945,999 37,529 6,585,374 23,410 7,083,674 45,121 385,747 8,527 VERKET 4,867,629 10,498 4,375,864 4,573 1,528,633 12,046 176,173 5,119 wire STATES 1,136,269 5,953 527,824 3,014 679,998 4,401 30,036 373 name 324,040 9,713 485,735 5,345 372,598 9.271 24,30 613 JULY PRITADE 3,590,814 6,335 1,27,88 3,76% 2,105,252 5,745 42,793 300 643,773 1,100 1,252,730 2,98 578,178 3,748 25,003 THE 589,167 as $03,279 Esse 1,145,713 3,971 61,961 1,203 code RESURN TOTAL DEPART 7,244,149 19,332 RELATIV 1,966,233 6,033 - STATES Included is - Inientific Priducts 1,179,428 3,333 me VATTAIN $93,642 2,228 2,450,967 4,272 92,765 1,125 LIM -3,572 we 1,150 11,609 13.00 By 24,669 241 2,768 31,395 3,295 2,92 21634 PITE Itams M 13,204 4,472 495 13,414 1,300 & 7,6gg 496 19,180 2,173 17,225 1,990 Regraded Unclassified 82 (8) 1926 1930 1934 1935 XM EXIM was KTW1 EDOB CONTOR UNSER TOTAL 67,695 1,6% 123,007 3,343 95,94 6,854 30,336 3,110 GREAT 26,569 570 30,476 1,189 60,074 4,587 14,107 1,394 UNITED STATES 20,943 419 66,442 1,041 29,909 1,398 10,047 1,140 GREAT SUITAIN 3,065 We 7,743 573 2,0% 87 3,33% an 4 RATIN TOTAL 6,632,009 19,092 1,151,362 5,759 2,455,935 14,293 2,015,534 22,350 TRALT 69,612 M 33,300 160 114,619 755 175,597 2,611 QUENANT 719,741 2,223 807,703 985 370,752 3,632 607,920 9,64 UNITED STATES 68,101 yrs 26,50% loz 162,518 425 49,807 83% GREAT BRITAIN 5,170,692 14,668 630,03% 2,845 1,354,196 5,903 03,436 5,180 TOTAL 1,789.543 3,445 107,971 334 310,099 1,034 346,071 1,467 ISSUET 201,814 564 12,787 47 72,460 438 105,775 1,055 UNITED - . 12,146 57 94,449 21 n 9 NRITAIN 1,121,964 1,866 43,390 127 142,625 309 159,35% log ADDITIONAL FOR - MACHINE TOTAL 1,905,316 12,431 78.84 6,261 1,318,179 16,309 1,489,231 15,443 - 50,976 aGo 148,753 707 132,461 2,618 134,666 4,316 - WATER 57,439 lach 14,633 352 117,447 22% 633,735 1,451 - PRIVATE 1,374.00 8,641 415,751 3,530 818,492 10,098 539,110 6,755 SIDE, 4 THE TOTAL 1,119,986 31,934 350,568 18,021 230,812 12,960 12,441 1,425 DESIGNT 116,498 6,710 68,968 6,299 106,655 7,450 5,97 565 UNITED STATES 281,806 10,950 90,474 5,061 21,046 1,617 305 28 ARREFTIXA 385,192 5,200 61,052 1,430 39.133 5% 370 121 D. LEATEM & CRANOIS SEINS TOTAL 10,874 1,395 4,141 5 13,443 2,473 - STATES as 71 24 a 507 76 nusca 786 95 565 102 1,091 500 COMMANTS (Included to - firize, Bliss, 6,774 1,08 98h 170 10,351 1,784 Tanued & Otherwise prepared. STATE - - 1,113 197 480 135 02347 SERVICE 2,267 177 542 16 157 30 TOTAL 5,092 4,0%3 - STATE R$ 1,061 GREANT (Ind siad Is - Union, Bides, Tenned 4 Other visa prepared.) 1,290 405 name 1,20) 97° CHEAT BRITAIN 1,339 1,379 me. STATES. m. TOTAL 142,356 11,617 WITH STATES 7,836 770 GREAT 125,119 10,136 (Included La - Miclas, Eldes, famed à Otherwise prepapel) state - 1,806 167 name 1,660 in Regraded Unclassified 64 1930 1934 1926 1935 KILOS asse ELLOS curtos EXIOR correct KILOS à to 197,003 2,910 148,133 2,34 13,455 332 15,168 TOTAL 35 GEBUTT 598 28,323 469 588 21 94,672 1,94 55 1,435 84,140 1.305 6,534 176 3.45 UNITED STATES 128,344 us care BRITAIN 23,867 397 33.794 53% 3,430 se 3,190 93 - 7 - - 2,397 38 5.700 21213 105 PROVIDE RECEIVE TOTAL 73,864 1.323 64,532 1,289 12,553 270 17,393 - CERTAIN 11.757 145 13,639 334 1,819 67 2,179 99 SITE STATES 51,947 1,075 36,650 679 5,195 104 6,709 146 UNIT MITAD 4,5kg 47 8,200 209 2,976 a 3,263 NO JAPAN 355 7 1,019 22 2,331 a 4,582 114 PINE NAME, etc. TOTAL 6,445,019 1,774 3,682,985 1,250 363.405 BE ye,1k1 E 21,724 12 119,435 75 17,250 31 18,303 5 WITH STATES 6,391.069 1,739 3,472,622 1,088 ms,061 177 305,978 36 ITEMS I 81,040 73 3,000 . 24,740 R un - LATE, FLAND. TOTAL $68,211 275 476,055 606 348,127 972 290,238 T% GRANT 450,002 121 24,560 54 31,215 71 31.921 29 SITE STATES 259,921 kg 410,882 $ 266,650 771 223.707 615 GREAT BRITADE 10,892 75 19.551 23 36,988 71 1,976 6 EMIT non A GEARD NEW TOTAL 05,655 210 59,154 105 118,000 366 78,237 m COMMIT 20,508 DL 13,606 y 28,974 108 85,241 90 UNITED states 30,329 113 8,120 4a 25,099 112 17,480 109 GREAT BRITAIN 22.377 No 31,501 78 37.180 so 20,50h M write, CLOTH NO. TOTAL 181,679 774 125,147 The 191,728 1,670 186,328 1,2% must 45.983 158 63,835 279 94,088 616 105.318 § UNITED STATES 41,348 285 25.901 268 49,155 686 50,470 1,069 GREAT BRITAD 52,137 213 30,632 147 28,636 105 19,671 196 MET - & CODE TOTAL TOTAL 221,331 1,903 GENEART 96,631 707 UNITED STATES 61,242 635 20 Importo ITALY 13,669 144 - use. E. TOTAL 1,160,148 4,125 753.921 3.50 664,425 4,Mo 650,3 5,063 QUALITY 695,085 2,994 537,169 2,752 456,056 3.729 536,007 5,009 states 232,538 902 59.321 Not M 14,425 116 12,639 110,038 145 119,754 20) 20639 179 155,547 Wg 58,094 83 January 12, 1939 Coast Guard Communications A. Lochhead Technical Assistant to the Secretary Please transmit the following to Secretary Morgenthau: "The following is the message we propose sending to Brasil. Taylor" (Message attached) 84 "This Devertment believes that Minister Arabana should be prepared to disense is detail all aspects of the subjects included is the - enties which Minister lease Costs sent to Secretary Margenthan an December 2, 1938. It 10 our impression that these subjects fall into three general but closely related groups. Group I. Steps contemplated by the Bracilian Government to alloviate the existing exchange position. Specific setion which this Government could take to assist the Brasilian Government in clearing up the existing arrears. Group 11. Steps contemplated by the Brasilian Government to setablish a Central Bank; an estimate of the amount of reserves in gold. foreign exchange or the equivalent which the Central Bank would require, either is the form of Central Bank reserves or a stabilization fund. Methods by which the Brasilian Government plans to create and maintain these reserves. Specific action which this Government night take to help create immediate reserves OF to masist in the gradual achievement of the desired objectives, including methods providing for continuing cooperation between the two treasuries. Group III. The long range development program of the Brasilian Government. Estimate of amounts of foreign materials which will be required to carry out this program. Estimate of the effect ea the Brasilian balance of payments position. Proposed methods of financing purchases of foreign materials. It is understood that the contemplated methods are those which would have the smallest immediate impact on the external position of the milrois. Specific action which this Government sight take to facilitate the development of this program. Regraded Unclassified 85 In order for this Government to have a complete understanding of those problems, the balance of payments position for 1939 and enoning years should be thoroughly discussed as well as the anticipated effects of the proposed monsures on fature years. This Government understands that in order to carry out the various aspects of a comprehensive program, large amounts of money will have to be contributed lecally. For example, a long-range development program will doubtless require large expenditures for local materials and labor. It would be desirable to have information as to the methods proposed by the Brasiliam Government to finance both the external and internal portions of the program because of their joint effect on the budgetary and govern- mental indebtedness position of the Brasilien Government. e 7 Brazition matters 86 Jenuary 13, 1989. " , Dear Summer: Confirming our telephone conversation, I am enclosing a copy of the message which - suggest sending to our Embassy at Rio de Janeiro, Yours sincerely, (signed) Wayne 0. Taylor The Honorable Summer Welles, Under Secretary of State. encl 1-13-19 "This deverment believes that Minister Arabana should be propared to disease is detail all aspects of the subjects included is the commai- 87 enties which Minister Seese Costs sent to Secretary Morgenthm - December 2. 1938, 10 10 our impression that those subjects fall into three general but closely related groups, Group 1. Steps contemplated by the Brasilian Government to alleviate the existing exchange position. Specific setion which this Government could take to mosist the Brazilian Government is clearing up the existing arrears. Group II. Stops contemplated by the Brasilian Government to establish a Central Bank; as estimate of the amount of receives in gold, foreign exchange or the equivalent which the Central Bank would require, either in the form of Central Bank reserves or a stabilization fund. Methods by which the Brasilian Government plans to create and maintain these 70007700. Specific action which this Government might take to help create immediate reserves or to masist in the gradual schievement of the desired chjostives, including methods providing for continuing cooperation between the two treasuries. Group III. The long range development progres of the Branilism Government. Estimate of emounts of foreign materials which will be required to carry out this program. Bettrate of the effect on the Brasilian balance of payments position. Propered methods of financing purchases of foreign materials. It is understeed that the contemplated mothods are those which would have the smallest imediate impact on the external position of the milrois. Specific action which this Government might take to facilitate the development of this program. Regraded Unclassified 88 Is order for this Covernment to have a complete understanding of those problems, the balance of payments position for 1939 and emesing years should be thoroughly discussed as well as the anticipated effects of the proposed INSURER on future years. This Government understands that in order to carry out the various aspects of a comprehensive program, large amounts of meacy will have to be contributed locally. For example, a long-range development program will doubtless require large expenditures for local materials and labor. It would be desirable to have information as to the methods proposed by the Brasilian Government to finance both the external and internal portiens of the program because of their joint effect on the budgetary and govern- mental indebtedness position of the Brasilian Government. Regraded Unclassified Pages 89-91 placed in Book 160, pages 66A-C Loan Agreement between Universal Trading Corporation and Export-Import Bank - 1/14/3 92 DEPARTMENT OF STATE FOR THE PRESS JANUARY 14, 1939 No. 16 CONFIDENTIAL RELEASE FOR PUBLICATION IN THE MORN- ING NEWSPAPERS OF SUNDAY, JANUARY 15, 1939. NOT TO BE PREVIOUSLY PUBLISHED, QUOTED FROM OR USED IN ANY WAY. 93 DEPARTMENT OF STATE FOR THE PRESS JANUARY 14, 1939 No, 16 The President has invited the Minister for Foreign Affairs of the Remublic of Brazil to visit Washington early in February ns the guest of the Unitod States Gov- ernment in order that verious questions of common in- torest to the two Governments may be discussed, The following 1s the text of D tolegram addressed by the President to the President of Brazil on January 9: THE WHITE HOUSE WASHINGTON January 9, 1939 Hio Excellency Getulio Vargas Prosidont of the United Statos of Brazil, Rio do Janeiro, Brazil. There heve nrison during recent months various questions of gront importance in which our two Gov- ornments are equally interested. It would be par- ticularly gratifying if these matters could be dia- cussed in direct conversations between high officials of our respective Governments in that frank and friendly manner and in that spirit of mutual help- fulness which fortunately are traditional in the ro- lations between Brazil and the United States. For this purpose I am extending through Your Excellency nn invitation to your distinguished Minister for Foreign Affnirs, Dr. Oswaldo Aranha, to vinit Wash- ington C.B the guost of this Government. If it 16 agree- able to Your Excellency and convenient for him, I would suggest that the visit take place no soon n.B. possible after the first of February. I hope very much tirt it may be possible for your Minister to accept this invitation and to visit Washington where he goined 60 many friends during hie service ne your Ambessador to this capital, and where it would give no and the members of ciy Government the greatest pleasure to welcome him. Please nocopt the assurances of my highest con- sideration, together with the expression of my warm personal rogard. FRANKLIN D. ROCSEVELT The President received on January 13 the following telegram from President Vargas informing the Prosident that the Brazilian Ministor for Forolan Affairs was pleased to accept the invitation of the Government of the United States: 94 Rio do Janeiro, January 13, 1939. His Excellency Mr. Franklin Roosevelt, President of the Republic of the Unitod States of America, Washington, D.C. I derived groat pleasure from Your Excellency's tolegram from the 9th instant. As Your Excellency rightly rocalls, cooporation of their Governments in the solution of continental and international problems la n clonsing tradition in tue life of our nations. No less valuable and deserving of welcome will be our decision, in this ora of confusion, nni- nated by the sane spirit of cooporation, to sock the rdjustment of any problems, oven internal onca, which Loy aid directly or indirectly in the ronffirmation of this friendship and of the interdopendence of the interosts of our nations. This will nlso DE true in this new meeting which Your Excellency proposes bo- tween the Minister of Foreign Relations, Mr. Oswnldo Araniin, and some members of your Government, My Gov- crnnent thanks you for the kind wording of the invito- tion and Minister Arenha will take much plensure in visiting Washington early in Fobruary. I suggest, morely 08 n. practical measure for the study of the problems in question, that the Embassy of the United States of America at Rio de Janeiro furnish ne as soon de possible with nn outlino of then, an as to enable no to consult my assistants and instruct the Minister of Foroign Rolations in such n. way ao to meet Your Excellency's wisnes. It WAB particu- larly pleasing to no to hoar from Your Excellency such flattering references to the nission which Mr. Aranha performed there ns my Ambnesador. I pre- sent to Your Excellency the assurances of my high consideration and bog you to boliovo in my sentiments of approciation and cordinl ostoon. GETULIO VARGAS. Junuary 17, 1936 95 My dear Jesses For your information, I an inclesing here- with a copy of the mesage which the State Depart- ment, at our request, cont to Brasil is commention with the approaching visit of Minister Aranks. Sincerely, Hom. Jesse Jones, Chairman, Reconstruction Finance Corp., 1835 H Street, Fashington, D. 0. January 17, 1950 96 R dear Jesses for your information, 8 as inclesing here- with a copy of the mesage which the State Depart- ment, at our request, sest to Drasil is commention with the approaching visit of Minister Arasha. Sincerely, Men. Jesse Jones, Chairman, Reconstruction Finance Corp., 1825 8 Street, Washington, D.C. 97 Jamary 17, 1950 My dear Jesses for your information, I at inclesing here- with a copy of the message which the State Depart- mest, at our request, cost to Brasil is connection with the approaching visit of Ninister Arasha. Sincerely, Home Jesse Jenes, Chairman, Reconstruction Finance Garp., 1835 8 Street, Washington, D.C. 98 "This Government believes that Minister Arahana should be prepared to discuss in detail all aspects of the subjects in- cluded in the communication which Minister Sousa Costa sent to Secretary Morgenthau on December 2, 1938. It is our impression that these subjects fall into three general but closely related groups. Group I. Steps contemplated by the Brazilian Government to alleviate the existing exchange position. Specific action which this Government could take to assist the Brazilian Government in clearing up the existing arrears. Group II. Steps contemplated by the Brazilian Government to establish B Central Bank; an estimate of the amount of reserves in gold, foreign exchange or the equivalent which the Central Bank would require, either in the form of Central Bank reserves or AL stabilization fund. Methods by which the Brazilian Government plans to create and maintain these reserves. Specific action which this Government might take to help create immediate reserves or to assist in the gradual achievement of the desired objectives, including methods providing for con- tinuing cooperation between the two treasuries. Group III. The long renge development program of the Brazilian Government. Estimate of amounts of foreign materials which will be required to carry out this program. Estimate of the effect on the Brazilian balance of payments position. Pro- posed methods of financing purchases of foreign materials. It is understood that the contemplated methods are those which Regraded Unclassified 99 -2- would have the smallest immediate impact on the external position of the milreis. Specific action which this Govern- ment might take to facilitate the development of this program. In order for this Government to have a complete under- standing of these problems, the balance of payments position for 1939 and ensuing years should be thoroughly discussed " well as the anticipated effects of the proposed measures on future years. This Government understands that in order to carry out the various aspects of a comprehensive program, large amounts of money will have to be contributed locally. For example, & long-range development program will doubtless require large expenditures for local materials and labor. It would be de- sirable to have information as to the methods proposed by the Brazilian Government to finance both the external and internal portions of the program because of their joint effect on the budgetary and governmental indebtedness position of the Brazilian Government. Regraded Unclassified 100 January 19, 1959 My dear Mr. Pierson: For your information, 1 as inclesing herewith a copy of the message which the State Department cent, at our request, to Brasil is commestion with the approaching visit of Minister Aranka. Sincerely, - Ron. Varron Les Pierson, President, Export-Import Bank, 910 17th Street, Washington, D. c. ( 101 January 17, 1939 by dear Mr. Pierson: For your information, I as inclesing herewith & eopy of the nessage which the State Department sent, at our request, to Brasil in connection with the approaching visit of Vinister Aranha. Sincerely, Non. Warren Les Pierson, President, Export-Impert Bank, 910 17th Street, Washington, D. C. 102 democry 19, 1999 w dear Mr. Piersons For your information, $ as duclesing herewith a copy of the message which the State Department sent, as our request, to Brasil is commention with the approaching visit of Maister Areaka. Sincerely, Mea. Warren Lee Pierson, President, Export-Import Bank, $10 17th street, Washington, D. c. - 1 January 18, 1939. 5:13 p.m. 103 HMJr: Hello. Operator: Dr. Feis. Go ahead. HMJr: Hello. Herbert Feis: Hello, Henry. HMJr: How's the South American expert? F: Still among the survivors. HMJr: Amonget the -- I see. F: What? HWr: Were you spied on? F: I can't -- was I spied on? HIGH: Yes. F: Yes, but not by the people of the -- that were written about in the press. HMr: I see. You had little special spies all your own. F: Oh, I was one of the favorite subjects of observation. HMJr: I see. You called today. F: I did. Look, first, about those two documents in which you were interested. Has Archie reported to you? HMr: Yes. F: Now I have gotten shold of the one copy that exists in the department of the memo of our talk with Mallet. HWr: Yes. F: Do you -- HMJr: I can have a copy of it? Was it that confidential? F: Wait -- wait just & minute. I'll have a look at it myself. HMJr: You don't have to read it now. I want -- - 2 - 104 F: Stanley Hornbeck appears to have done it. Ah -- HILJr: I think it would be safe to give it to the Secretary of the Treasury. F: I'll get over to you what -- what I have here. HMJr: Right. F: This is the only thing which I could find. There was -- you know all the substance. HWr: Yes, but I -- having read the whole cable, it's 80 important I wanted something on it to -- F: All right. H/Jr: Close it out. F: All right. I Just -- now on the Brazil thing, you've gotten that copy. I've got that. 6: Right. Now, on the whole Aranha negotiation -- ah -- unfortunately for myself, I think I'll have to take on, et least temporarily, the job of coordination 8.8 be- tween, at any rate, ourselves and T.A., and Import-Ex- port Bank. I think sometime if you can find time to talk with me about it, it might too be useful -- HUJP: Well -- F: So that not to cross wires and the rest. HWr: well, I had in here yesterday, end I gave him a copy of what we propose to take up, and sent one to Jesse Jones, strictly confidential, in order to keep them posted. Hello? F: Yeah HILJr: And he asked me what the Treasury wanted to do, Bee? So if you wanted to take on the Treasury also, and be- tween the State Department and the Treasury, why it would be most agreeable to me. F: Indeed I don't. What I want to do 1e to -- HMr: Well, I expect -- F: Before Aranha arrives -- - 3 - 105 HMr: When Aranha comes over here and I see him, I'm -- I'm going to ask the State Department to have somebody here. F: All right. That's -- that I'd like. HWr: See? F: But before he comes -- HIWr: Oh, we've got to sitdown, that's all. F: We better get this thing pretty completely worked out. HIJr: Absolutely. F: And that's what I wanted to suggest to you when you get time. HWr: Yes. F: Now in addition to that, there are various other mat- ters that I think you would be interested to talk about again when you get time. HMr: I'm going to be here this weekend. I'll give you a ring. F: All right. Will you? HWr: Thank you. F: Good bye. HMr: Good bye. F: Good bye. 106 MEMORANDUM January 29, 1939. TO: $ Vr. Taylor 1M. white 1 Mr. Lochhead A.L. FROM: Mr. Gaston The Secretary requests that each one of you read these Rio cables and be prepared to discuss them with him as soon as possible after Mr. Taylor's return. mrs Taylor white COPY FOR SECRETARY Talk 107 CA Gray RIO DE JANEIRO Dated January 24, 1939 Rec'd 6 pam. SECRETARY of State Washington 28, January 24, 5 pame Department's 20, January 20, 7 Pame (A) of icial figures: $6,000,000. In addition Estimat- Ed $4,500,000 for unsold stocks of United States origin, Also $2,500,000 which is an Estimate of needs in EXCESS of daily quotas over and above limits Establishtd by the bank and which companies operating on the basis of daily quotas allege represents a legitimate claim. Total $13,000,000. (The Estimate given above for needs in EXCESS of daily quotas would undoubtedly bE contested by the Bank of Brazil which would claim that this amount has already been absorbed in past remittances by the companies involved.) (B) The Director of Exchange is unable to answer the Department's question. BE points out that the amount of outstanding contracts which have been issued and which have not yet matured varies from day to day in accordance with maturities and new contracts issued. I venture to point out that the amount of the outstand- ing contracts appears to bE relatively unimportant as regards 108 CA --2--28 from Rio, regards the discussions with Aranha. If agreement 10 arrived at resulting in the supply of adequate Exchange for future imports, I am convinced that American exportErs will not push for immediate payment of the ,outstanding contracts. These contracts are being liquidated promptly on maturity by the Bank of Brazil and the Embassy has no reason to fear that this practice will bE discontinued. (c) Although no official division along commodity lines is available, following 13 an unofficial estimate of the position of the American oil companies: (one) aprears of Exchange for oil of United States origin for which no contracts have been issued; Exclusive of stocks 735,000 (two) arrears on stocks of United States origin 3,000,000 (three) arrears on oil imported by American companies from countries other than the United States; Exclusive of stocks $990,000 (four) arrears on stocks imported by American companies from countries other than the United States $2,400,000 this figure is in addition to the $4,500,000 for unsold stocks given in (a). Estimate of amount of earnings of American corporat- ions in Brazil which might bE transferred to the United States if Exchange could be secured $10,000,000. Complete exchange report embracing all the points covered in this telegram and expanding thereon will bE sent to the Department by air mail leaving here January 28th. HPM NPL SCOTTEN COPY FOR SECRETARY PARAPHRASE OF TELEGRAM RECEIVED 309 FROM: American Embassy, Rio de Janeiro DATE: January 24, 1 p.m., 1939 NO.: 27 STRICTLY CONFIDENTIAL Department's 21 of January 21, 1 p.m. The following information has been given the Embassy by the Director of Exchange of the Bank of Brazil in strict confidence with the understanding that the source should not be divulged: (a) No important changes in the Brazilian exchange control are in contemplation; (b) The income from the present 3 percent tax is included in the income from taxes on exchange operations; (o) I am informed by the Director of Exchange that it is unnecessary to increase the existing taxes on ex- change operations in order to reach the 250,000 conto yearly figure which the five-year plan specifies. The Director states that the six percent tax on remittances other than import bills, the existing three percent tax on imports bills, and the present profit on exchange operations are sufficient for this purpose; (d) The exchange tax proceeds will be wholly in milreis; (e) In accordance with the needs of the Government, the 110 -2- the proceeds of this tax may be spent partially in Brazil or partially abroad; (f) National Treasury obligations will be issued wholly in Brazil, and it is not (repeat not) contemplated to use them as payment for debts, such as the funding of overdue exchange debts, outside of Brazil. Being unaware that the Embassy was given the above information by the Bank of Brazil, Aranha, who claims authorship of the five-year plan, appeared very reluctant to disclose any information regarding it and stated that the Government, to avoid speculation in Brazil, desires to keep this matter strictly confidential for the time being. Aranha added that no decision hae been arrived at in connection with points a, b and o of the Department's telegram under reference and that until he discusses all aspects of this matter in Washington, no decision will be taken. Aranha's remarke with respect to di and f accord with the statements of the Director of Exchange. He explained regarding e that although over one-half of the proceeds of the new taxes of all kinds are allo- cated to the Ministry of Finance for 1939, the proceeds will in fact be devoted largely to the payment of contracts for 111 -3- for armaments, and that in order to conceal the nature of these expenditures the allocation of the credit was made to the Ministry of Finance. He added that Brazil will export annually six tone of gold which is the present production, in accordance with this plan. The Government, however, has taken steps to increase its gold production and 18 very confident that it can augment it to at least nine tons by making to miners available/equipment to improve the efficiency of placer mining. It is the definite intention of the Government, Aranha added, to maintain a balanced ordinary budget during the life of the five-year plan. He explained that, in view of the fact that experience has shown that the Brazilian national revenue increases from ten to twelve percent normally each year, the burden on the nation of the plan will not be 8.8 heavy as the figures appear to indicate. The promulgation of this plan is in line with the statement made on November 10 last by President Vargas. It has a political significance of course. The accusation most frequently made against President Vargas by his detractors has been that he is an inferior administrator. It would appear that this plan has been conceived in order to dispel this accusation. The publication of the plan at this time, although it has been under study for several months, 112 -4- months, was undoubtedly timed 80 as to coinoide with the departure yesterday of the Minister of Finance to confer at Montevideo with the Ministers of Finance of Argentina, Uruguay and Paraguay, as well as the approaching depar- ture of Aranha for Washington. 07/11/21 EA:DJW DATE VEHICLES 00PY FOR SECRETARY 113 REB TELEGRAM SENT GRAY January 21, 1939. 1 P. m. AMEMBASSY RIO DE JANEIRO (BRAZIL) 21 Your 20. Please secure all possible additional information from Brazilian Government on the following points: (a) In connection with this new law or otherwise, is the Brazilian Government contemplating any important change in its exchange control arrangements. (b) DOES the income from taxes on Exchange operations include income from the present 3. percent tax. (c) Has decision been reached as to the form of the taxes to be created on Exchange operation. (d) Is it possible to know whether the procesds of such exchange tax will be wholly in milreis or partly or wholly in foreign currencies. (E) Is it contemplated that the proceeds of the tax are to bE spent wholly in Brazil or partly for purchasts or remit- tances abroad. In this connection, Department observes that over half of the procesds of the new taxes of all kinds 114 REB 2-#21, To Rio, Jan.21,lp.m. kinds are allocated to the Ministry of Finance. (f) As regards the credit operations mentioned to take the form of the issue of national Treasury obligations, is it contemplated to issue these in Brazil or outside of Brazil or possibly to USE them as payment for debts outside of Brazil, such as a possible new arrangement for funding overdue Exchange debts. The Department would also approciate receiving your comment concerning the situation created by Brazil's action, its timing, Et cetera. HULL (HF) EA:HF:LWW RA COPY FOR SECRETARY PARAPHRASE OF TELEGRAM SENT NA 115 TO: American Embassy, Rio de Janeiro DATE: January 20, 1939, 7 p.m., 1939 NO.: 20 With regard to the details of exchange payments due American exporters, what information can the Embassy secure? Will it be possible for the Embassy to procure from the Brazilian authorities material on the following: (a) Amount of delayed exchange due American exporters for which contracts have not been issued; (b) Amount of contracts outstanding which have been issued but which have not matured yet, subdivided into such time periods 88 may be significant and feasible; (c) Division of the above along commodity lines. If no more information is available, is it possible to tell how much of the preceding totals are due to oil companies? As the Department is trying to formulate immediately the basis of prospective discussions with the Brazilian Foreign Minister, it 18 urgently in need of all available information on these points. Would it also be possible for the Embassy to furnish an estimate as to the amount of earnings of American oor- porations in Brazil which might be transferred to this country if exchange could be secured? EA:DJW 116 JR GRAY Rio de Janeiro Dated January 25, 1939 Rec'd 12:41 p.m. Secretary of State, Washington, 30, January 25, 1 p.m. The Bank of Brazil has published the following announcement this morning: "An accord having been reached between the Brazilian and the German Governments for the prorogation of the modus vivendi with Germany, it is resolved by the Minister of Finance that the fiscalization department of the Bank of Brazil, from this date on, will bE permitted to register new sales of any Brazilian products to Germany, in accordance with the regulations in force, until further notice". The Foreign Office Explains that the so-called accord is purtly a verbal understanding to Extend the 1936 agreement and is similar to several other Extensions of the compensation arrangement by verbal understanding since its technical Expiration in June 1937. I will, however, query Aranha personally regarding this as soon ns possible end report to the Department. Please inform Department of Commerce of first paragraph of this telegram. MC:RR SCOTTEN 117 REB GRAY Rio de Janeiro Dated January 30, 1939 REC'd 3:40 P. m. Secretary of State, Washington, 41, January 30, 3 P. m. My 30, January 25, 1 P. m. Aranha informed me prior to his departure yesterday that the announcement of the Bank of Brazil was the result of an Exchange of notes between the Foreign Office and the German Embassy here. The notes, which Aranha gave me in confidence, confirm a verbal under- standing for the Extension for an indefinite period of the 1936 compensation arrangement. The only change in this arrangement is an increase of ten thousand tons in the quota of cotton to be exported to Germany, allegedly to take care of the needs of the territories recently incorporated into Germany. The note from the Fortign Office reserves a monopoly of Exchange transactions for the Bank of Brazil and maintains the present prohibition against compensation mark trans- actions by the local German banks. Copies 118 REB 2-#41, From Rio, Jan,30,3p.m. Copies and translations of the notes go forward by air mail tomorrow. SCOTTEN PEG DIVITORS - VEHICLES 119 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Rio de Janeiro DATE: January 31, 7 p.m., 1939 NO 28 You are requested to send by airmail immediately Brazilian import trade data for as many months as possible of 1938, by chief supplying nations, for leading non-trade agreement items (a) where German competition is most severe and (b) important in United States exports. HULL (HF) COPY:DJW Regraded Unclassified 120 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Rio de Janeiro DATE: January 31, 6 p.m., 1939 NO.: 27 The Department is studying among other matters, preparatory to Aranha's arrival, the position of American enterprises in Brazil concerning the possibility of re- mitting dividends and interest. Can enterprises of German and other nationalities at present make such re-' mittances, under compensation accords? Can you advise the Department? HULL (HF) COPY:DJW 121 JR GRAY Rio de Jansiro Dated February 1, 1939 Rec'd 10:30 a.m. Secretary of State, Washington. 43, February 1, noon. Department's 28, January 31, 7 p.m. Every Effort will bE made to send the data requested as soon as possible. HOWEVER this will require considerable research in the statistical office which as the Department is aware is far from Efficiently organized and possibly one WEEK will bE required to complete the report. If the Department prefers the data can of course bE sent by telegram. SCOTTEN HTM:DDM 122 JR GRAY Rio de Janeiro Dated February 1, 1939 Rec'd 12:15 p.m. Secretary of State, Washington. 45, February 1, 2 p.m. Department's 27, January 31, 6 p.m. No (repeat no) remittances abroad for interest or dividends have been permitted to any country since latter part of 1937. There is no provision in compensation arrangement with Germany covering this point and the Director of Exchange informs me the Bank of Brazil has on several occasions categorically refused the request of the Reichsbank to permit this class of remittances. SCOTTEN DDM:HTM $ 111 11 2 EA 123 only copy February 1, 1939. BASIS OF ISCUSSION WITH MINISTER ARASHA The prospective field for disoussion with Aranha, the Oragilian Winister of Foreign Affairs, virtually overs the whole of the economic and political relations between the United States and tragil. If the discussions are successful, this Government may undertake to do various things; in return the Pragilian Government would give certain undertakings and follow certain agreed-on courses of action. The following is an attempt to summarize this field of action and agreement. It is intended to be & plan in -bich ench item is but part of a whole scheme in- tended to serve Bragilian development and prosperity and to improve the Deais of Brasilian-Amerioan economic and financial relationships. within this scheme each part of the program sust be considered in relation to the other parts. Part I Vany considerations join to justify willingness on our part to axtend financial and egonomic inssistance to the Brasilian Government. On the basis of preliminary correspondence, Aranha undoubtedly expects to De able to 124 - 2 - to secure proffers of assistance. This assistance might take any one or all of the following forms: (1) Technical cooperation for the creation of a central bank in Brazil and the loan of funds to Brasil for the augmentation of the reserves of this bank. Such a loan might include the provision of gold and, in part, eight be kept within the United States. Operations of the bank would have to be directed in such n. way that the recerve could reasonably cerve 198 normal function of meeting temporary external difficulties without being placed in danger of being rapidly dissipated in payment of excess importe by Brasil. Thether in addition there night be created & tabilization Fund is a matter to which perhaps the !reasury will want to give consideration. (2) A long term loan to be used for productive pur- poses within Brasil - such urposes to be generally agreed upon in advance. This loan would presumably be accompanied by an arrangement providing that the part of it used to finance imports would be spent in the United States. Some such loan transaction might be within the power of the Export-Import Bank. However, there are reasons 125 - 3 - reasons for preferring to handle it on the basis of coa- resional authorisation. (3) As part of 6 plan for clearing up present delays in the provision of exchange for exports from the United States, and for preventing the recurrence of cooh frogen exchange indebtedness, the Export-Import Bank =1ght to a limited extent participate in a plan devised for this purpose. Two previous "un-freesing" arrangements have been ineffective. It is believed that the Braziliam Government itself should find the means for paying off a part of these exchange arrears, and that if the rest is converted into an obligation, this obligation should run for NO short a term as is fensible. No attempt has been made to decide exactly how far the BABK should go in participation, but prevailing opinion in that if it discounts the paper issued by the Brasilian Government for this purpose, it should be with recourse against the American exporter. Part II The conditions under which these loans night be made and the agree ente and arrangements with which 11 would be ad- visable to accompany thes. If these *otions are to serve their purposes of contributing towards the economic development and stabil- ity Regraded Unclassified _26 - 4 - ity in Drazil and the improvement of relations between Bramil and the United States, the Brasilian Government should at the same time deal with various outstanding difficulties and put into force policies that will pre- vehic their recurrence, and enable this financial nesistance to produce the results desired. The main steps of this character which the Brazil- ian Government eight be naked to consider outside of any agreements having to do directly with the creation of a central bank arei (1) Elaboration of the necessary agreements on the basis of which the central bank and public works loans eight be made. (2) Development and fulfillment of the plan for resumption of service of the present Bragilian defaulted debts. This scheme would of necessity provide only very modest payments, at any rate in the immediate future, and also perhaps permit Brazil to reacquire part of this debt at prices prevailing after loan service vas resumed. (3) Understanding as regards the possibility of American enterprises in Brazil remitting some earnings as interest or dividends. (4) 127 - 5 - (4) Understanding in regard to the position of American enterprise in Brazil. (5) Agreement upon and enforcement of arrangements and policies which would (a) Include necessary measures to deal with the present overdue exchange indebtedness. (b) Administration of policies to prevent the creation in the future of similar exchange arrears. (o) Arrangements to assure prompt provision of dollar exchange for future American exports. (d) Arrangements that would safeguard the competitive position of American trade in the Brasilian market, particularly in respect to the competition of trade carried out on the basis of compensation OF payments agreements. This set of problems has attended Brazilian-American commercial relations steadily during the past few years. It is to be hoped that when and as Brazilian external economic affairs can be put on a more stable and assured basis, they will just disappear. But in the meantime, it is deemed important to have arrangements adequately dealing with them, and proposals that seem to meet diverse 128 - 6 - diverse difficulties and requirements not too uneatiofac- torily are net forth in the following Part III. Part III Elements of possible program to deal with existing difficulties in the exchange and trade field. These difficulties have figures largely in our previous discussions with both Aranha and Souga-Costa and have been the subject of a vast amount of subsequent discussion. & great variety of suggestions has been ut forward. No attempt will be made in this memorandum to examine all the alternative programs that might be put before the Brazilian Government for consideration as an adequate way of dealing with the situation. The committee has rather, on the basis of its discussion, tried to formulate that program which reemed to it the most promising and satisfactory preliminary basis of discussion with the Bragilian Government (bearing in -ind that the program (a) must be reasonably effective, (b) acceptable to the Brazilian authorities, (c) not in conflict with our general commercial policy, (a) not giving ground for other countries, especially Germany, to claim that they are being unfairly pressed as part of 129 - 7 - of & financial deal between ourselves and resil). The cosentials of the suggested busis of discussion are AS follower (a) That the present trade agreement between Brasil and the United States be retained in force. Reiteration of the Brazilian policy to so safeguard its trade arrangements with other countries no not to ispair the natural and anticipated advantages of the Brasilian-American trade agreement. (b) That the Bragilian Government give & clear reiteration of the pledge contained in the exchange of notes accompanying the Brazilian-American trade agreement to the effect that it would make dollar exchange immediately available for the ayment of exports from the United States (this eight be supplemented and made more significant by a further statement that the Bank of Brazil would undertake to keep in the United States at all times a fund for the provision of the necessary dollar exchange). (c) That Brasil will undertake as long as its prod- note are sold in the United States for free exchange, not to make any of the free exchange available for the payment of goods from countries which do not permit the acquisition of free exchange in payment for Brasil- lea products. (d) 130 - - - (a) That the Brazilian Government should work out a plan for dealing with the present overdue exchange arrears, providing cash for some refunding of the rest on 0.0 favorable terms as possible to the creditors. (0) That in order to prevent the recurrence of this situation, the Bragilian Government have effective arrangements whereby the total exchange liabilities occurzing will not be in excess of the exchange avail- able. of the alternative means of achieving that end it is suggested that the Brasiliam Government eight well consider the insuguration of B. policy whereby it enforced flexibly differential buying and selling rates of exchange. Under such a scheme the sige of the differential could be varied according to the necessity of discouraging 10- porte at any given time. Besides the quality of flexibility this arrangement would have the serits of not involving automatically any discrimination as between Bragil's sources of supply and of further saking exchange avail- able to the Brasilian Government as a favorable rate. If such a policy were effected, the Brazilien Gov- srament should promise that exchange would be provided for exports from the United States on a nost-favored- nation basis (that the spread between the buying and selling rates applicable to American commerce should not 131 - 9 - not be greater than that applicable to the commerce of any other country, including the commerce conducted under compensation arrangements). This still would leave it possible for Bragil to establish n. scheme of cross-rates applying to the trade -ith Germany and other compensation countries that would leave American trade at its present disadvantage or in- crease that cisadvantage - if the Brazilian Government so chose. In that respect, ve should be dependent upon the general pledge sentioned in (a) above - to effect which Brasil might have to continue to Insit the quantity of its exporte for blocked currencise. (f) It would be agreed that there should be a. periodic joint audit (possibly cerried out on the basis of cooperation between the two central banks) of the exchange position of Brazil for the purposes of studying the effects of these arrangements and guaranteeing their satiofactory operation. Part IV As stated above, it is to be hoped that internal and external economic conditions in Brasil will 60 develop that the Brasilian Government will not need to exercise the Unclassified 132 - 10 . the methods of control which are the subject of the preceding section. To contribute to that outcome - and in logical connection with any plan of public works financing - attention should be given to the long-run study of economic development in Brasil. This sight well, as a first step, justify the creation of a joint committee to study the question of the means of promoting the production and sale of complementary products, such as rubber, cooon, manganese. It is believed that there is much to be hoped for in this field. Part V It is suggested that an additional possible field of arrangement that could be worked on at the same time as the preceding 1s the matter of the acquisition by the United States from Brazil of certain commodities on our strategic raw materials list. These would be delivered to the American Government for storage pur- poses. The provision of such materials sight well be used to pay off in part the loans to be made. EAIHFILLW 133 RE BRAZILIAN NEGOTIATIONS February 3, 1939. 12:10 p.m. Present: Mr. White Mrs Klotz H.M.Jr: Harry, give me your recommendations. White: There is nobody who is over-all; there are some men in different phases. There is a young man whom Viner had recommended and who has written a book on Uruguay, written reviews on Latin American books, seems to be quite able. de's rather young, and is on the faculty of the University of Louisville. Been at Harvard. One of nis chief merits of distinction is that he refused a Ph.D. from Harvard. He's well-to-do and eccentric and seems like an able chap .... H.M.Jr: where's he from? White: who would form part of a group. I doubt very much H.M.Jr: What's his name? White: Hansen - Simon. G. Hansen. Then there is Fetter, who wrote on Chile. He's not familiar with Brazil very much, except incidentally, and a little on Latin America. Be too is rather young. Then there is a Professor Lowry, who spent five years in Brazil until recently. He's a sociologist who would be good on certain aspects, but would cer- tainly not be competent on many other espects, but would be valuable again as one of several, not by himself. Then there is a Professor James who is well known for his - as a geographer of Brazil. He knows the .... H.M.Jr: You're not giving me what I want. Regraded Unclassified 134 -2- White: There simply isn't anybody. One or two others I can mention. Young, who is supposed to be a good monetary man, but who Viner says is very stodgy; sound, but very definitely stodgy; rather dull, not at all brillient. M. N. Knight, economic historian, very able, but whose recent familiarity with Latin America - it's not recent, it dates back. Outside of that .... H.M.Jr: What I was thinking of - I've had an evening with Feis, and this thing - the only two things I get: a question of organizing a central bank, a question of exchange control, and so forth and so on, Now, the two people that come to my mind that could be the most helpful are (1) Walter Stewart and (2) Professor Williams of Harvard. White: Williams was there about five years ago, H.N.Jr: Williams and Walter Stewart. White: Walter Stewart - I don't know anything either way. H.M.Jr: If we're going to organize a Central Bank of Brazil, I don't suppose anybody is a better technician than Walter Stewart on central banks. Is there? White: I didn't know his capacity in that field. H.M.Jr: You know, he was economic adviser of the Bank of England White: Yes, but it was a long time ago. Central banks have moved. H.M.Jr: All right, think about it over the week-end. White: I want you to do much more than that. If that's all there is to be done, we're not going to get anywhere at all. Suppose you do establish a central bank there. But you have to depend on B group. H.M.Jr: I thought you'd have somebody as good as this Social Security suggestion. 135 -3- White: No, there isn't anybody; there isn't anybody in the field. H.M.Jr: We'll just have to wait until we hear. As a matter of fact, the way it is now it looks as though the State Department wants to run the whole thing. White: The way it looks now, it looks like it's going to be a flat tire, better keep out from under it. H.M.Jr: I thought Herbert Feis would go through the ceiling when I said, "The foreign thing has got to be decided - it's got to be decided whether this Bondholders' Committee is going to run this thing or not." White: The way it's headed now, it's going to break down. Nothing very substantial is going to emerge. The odds are very much against it. H.M.Jr: Then you'll have to do some thinking, see? White: Yes. H.M.Jr: In the meantime .... White: Much more. H.M.Jr: ... I'm losing interest. I'm much more interested in the domestic situation. White: And don't forget, we've got a couple of good men around the shop. H.M.Jr: Well, you think about it. White: O.K. H.M.Jr: You know, they're coming over Tuesday afternoon with a plan; we'll see what they've got. Last night I saw A. À. Berle. He said, "Getting ready for Gustemala?" I said, "Why Guatemala?" He said, "That's where the Secretaries of the Treasuries are going to meet." 136 -4- I said, "I promised myself the first person that asked me that question would have to represent me. You're elected." Dwight spoke up: "Oh, that's fine. The Minister of Guatemala gave me the loveliest native costumes." Klotz: Who said that? H.M.Jr: Mrs. Berle. I said, "If you think I'm going to let them get me out in the middle of the Atlantic Ocean and have somebody pull the plug on me, you're mistaken." He said, "I'm tremendously interested." I said, "What do you think the Treasury could do in Guatemala?" White: He's not a bad chap for 1t. H.M.Jr: Oh, he's crazy about it. And his wife has got a costume, so they're all set. Klotz: His wife is going with him? H.M.Jr: I suppose SO. Why? Klotz: Be good for him. White: Will you want to take up anything about Brazil before then? H.M.Jr: Not before Monday. White: Or would you prefer after Tuesday? H.M.Jr: I doubt if I'll - we'll see. White: Whenever you're ready. H.M.Jr: Are you ready? White: We have a good deal of material. H.M.Jr: Be ready around Monday? White: Be readier. H.M.Jr: Readier. TREASURY DEPARTMENT 137 INTER OFFICE COMMUNICATION DATE February 6, 1939 TO Mr. Taylor FROM Mr. White Anbject: Comments on the Proposals Contained in the State Department Memorandum on Brasilian Negotiations 1, The Central Bank Technical assistance in formulating and organizing the central bank may best take the form, in our opinion, of discussions and com- ments on drafts of proposals which are prepared and submitted by the Brazilian authorities. The Brazilian Government had some drafts be- fore It for consideration and will probably have one to present for our examination. Te suggest that the Federal Reserve Board and the Federal Reserve Pank 0° New York cooperate with the Treasury and State Departments in presenting this Government's views on technical matters with regard to the central bank, 2. Legislative Authority for Extensions of Credit The authorization of the Proort-Import Bank expires on June 30, 1930. The extension of the authorization will come before Congress soon. Authority for granting these loans may be obtained from Congress through the extension of the authorization of the Export-Import Bank; the legislation might include a statement of intention to make types of loans envisaged in the Brazilian discussions, but the statement to he in the most general terms. The Export-Import Bank would then have "ill authority to extend all types of assistance to the Brazilian Govern- ment (as well as to other governments) including loans for monetary pur- poses, as well as long-term loans for industrial purposes, without re- striction as to terms and conditions. It is probably desirable to have Congress make clear either through specific legislation or discussion on the floor that it is intended by Congress that the Bank shall ha e the authority to make the types of loans envisaged in the Brazilian discussion. Notwithstanding the broad powers contained in the Bank's charter, the discussion accompanying the second renewal of the powers of the Export-Import Rank gave no clear indication that the types and magnitude of loans contemplated included all the kinds of financial assistance that will probably be seriously discussed in the negotiations. Moreover, the increased power over the Regraded Unclassified 138 Vr. Taylor - 2 affairs of the borrowing country that would inevitably accrue to the lending agency as a consequence of the negotiations and consummation of the type and magnitude of loans envisaged in the Latin American program makes desirable careful consideration by Congress as to the specific agency or agencies which would best serve the intereste of both lending and borrowing countries. 3. Loans to the Proposed Central Bank for Purposes of Augmenting the Monetary Reserves (a) Te suggest the advisability of exploring in the discussion provisions for increasing the amount of silver (as well as gold) - in the Bramilian monetary system. Two proposals may be suggested for consideration: (1) To increase the use of silver in subsidiary coins. (2) The United States to lend to Brazil a certain amount of silver (in terms of ounces), which might be included in the specie I serves against note issues. (b) it the present time the Brazilian note issue has a specie reserve of only about 12 percent. Specie reserve probably needs to be greater than they otherwise would be if the central bank is to assume responsibility for note issues (and this no doubt will be one of the features of the bank). The legal max- 1mm limit of the volume of note issues will be directly 88- sociated with the volume of reserves in the hands of the cen- tral bank. Greater confidence may accompany the monetary program if the bank starts off with a larger proportion of specie re- serve than 12 percent. There is some indication which requires further investigation that the note issue is at the present time larger than is in the best interests of the Brazilian economy. (c) A loan of foreign exchange assets to Brazil for the purpose of building up its external reserves must be accompanied with careful safeguards. It is necessary to prevent the dissipation of reserves during the period of adjustment of the Brazilian economy to the balance of payments situation which will follow renewed service on foreign obligations and the development of its armament program. These safeguards can be included in the arran ements that must be made in connection with the stabilization of the milreis. be Stabilization Fund The creation of a stabilization fund has some psychological value but its operations could, in the case of Brazil, be as well carried out by the central bank. 139 Er. Tgylor - 3 In view of the small amount of gold that they could acquire, and in view of the possible wide swings in Brazil's talance of pay- ments, any stabilization fund Brazil might acquire might soon be used up. The situation would then appear worse than had no such fund been created in the first place and the needed gold taken from the usual bank holdings. For Brazil, it is a moot point whether the degree of secrecy that E stabilization fund would provide in its exchange operations is desirable or not. In any case the small size of a stabilization fund that is possible to create now, and the uncertainty of Prazil's trade prospects would make secrecy difficult, since the fund would have to be replenished quickly should un adverse balance develop. The creation of a stabilization fund might well await the acqui- sition of more metallic reserves and the development of more stable conditions with respect to her balance of payments, and experience with the new Central Bank. 5. Long-term Loans for Productive Investment in Brazil 70 believe that this is the most important element in the pro- posed discussions with the Brazilian Government and we are inclined to anticipate that the Brazilisns will also consider this feature to be the essence of the discussions. The memorandum submitted by the State Department suggests inadequate emphasis on this part of the program. To would like to suggest the following topics around which the discussion could be centered. (a) Plan the industrial development with the objective of increasing the sources of foreign exchange to the Prazilian Goverment in the future. (b) Discussion of rates of interest and rates of amortiza- tion of these loans which will be low enough to promote prof- itability of the undertakings, the repayment of the loans, the provisions for expansion of the enterprises on the basis of reinvestment of profits earned and provision of additional foreign exchange resources to the Prazilian economy. (c) Discussions with regard to the eventual control and ownership of these investments to insure its retention in the hande of Prazilian citizens. (d) Provision for technical assistance from the United States for all of the productive ventures embarked upon. 140 Vr. Taylor - 4 (e) Provisions to be made for the purchase of equipment and machinery from the United States rather than from European competitors of the United States. (f) Readjustment of the present armament program in the light of a program for productive investments. (s) Provision for a complete geological survey of Brazil to aid in the planning of productive enterprises. (h) The Brazilian Government possibly to undertake to cooperate with the United States in plans for control of their cotton growing industry. (i) The possibilities for directing industrial developments towards producing those products which Brazil now imports from non-American countries. (j) Possibilities for directing productive investments to those products which the United States and other American countries now import from non-American countries. We are of the opinion that the discussion with regard to the long-term productive loans be in terms of large amounts and that the expenditures be planned over a period of five years. (Obviously amounts, conditions, etc., are to be discussed so far as the Treasury in concerned, with the clear understanding that the discussions are preliminary and tentative.) In our view the basic solution lies in the industrial develop- ment of Brazil which will increase her export trade relative to her import trade to an extent which would solve the immediate problems and prevent their recocurrence in the future. It is essential that Brazil decrease its dependence upon coffee and cotton as their chief source of foreign exchange. Further, the standard of living of the Brazilian people cannot, in our opinion, be raised until and unless Pramil embarks upon these productive investments. For social and political reasons we believe it important that the investments be made under the conditions which will ensure that the ownership and control of these investments remain in the hands of the Brazilian residents. This program seems to be the only practical one which can lead in the future to a full resumption of Prazil's outstanding external obligations and to an increase in our trade with Brasil. Incidentally, we consider essential that the proceeds of these long-term loans be invested in Brazil and not diverted to liquidate present foreign exchange obligations. 141 Vr. "eylor - 5 C. /ssistance to Clear up Present Arrears in Granting Exchange to United States Emporters the present dollar arreers on trade account have been estimated at e minimum of 15 million and delayed remittances on account of interest and dividends an 210 million. lie do not have any informe- tier. to indicate the arresrs to other countries. It has been re- norted hot prior to the establishment of exchange control foreign concerns operating in Frazil remitted 160 million per year on account of earnings and inter st on privale investments alone. It is assumed that if arran erents are nade for immediate rent ttances of foreign exchange to United States interests it will be necessary to make the same errengements for all foreign interests. If so, the amounts involved ray be very large and not such AS can be cleared up in a mort veriod. It is our suggestion that the arrears on revittances of earnings :nd interest he preferably reinvosted in Prazil, and that no provision within tie next few years be made for withdrawal in foreign enchange. "e"hods to encourage such reinvestment should he fully explored. Re- investment, in view of the total rituation, might not be unsatisfactory to Nie foreign interests operating in Prazil, particularly if the long- term investment program were adopted which would raire the profitability of Weir investments and minimize the risk of ultimate loss, with respect to the arrears on payments to United tates exports we arree with the su gestion in the State Department menorandum that the Trazilian Covernment nake its own efforts to clear UD the existing situation. On the basis of the present foreign balance of trade and her current gold outout Prazil probably has adequate resources to do tide if she readjusts her present program involving imports for arma- nent purposes. This, in our opinion, would be a fevorable development. furthermore, it is our opinion that the facilities of the excort-Invort Bank should not he devoted to settlement of debts incurred by past exporte, 7. Reguration of Service on External Obligations It is our suggestion that measures be devised which will ease the burden of the resumption of the servicing of the debts upon Trazil Suvino the next few years. An arrangement can perhape be worked out in wideh the resurption for the first periods be in terms of milreis with provision for the remittance of the milreis within several years ifter resurstion. It may 1e possible that Trazil would, under such arrangements, agree to what may prove to he in the end a much better seitlement than notild lie the case were sive required to make invediate payment in foreign exchange. Steps may be taken to encourage the in- vertrent by the bondholders of the milrois interest payments in Presilian enterprises. Regraded Unclassified 142 Mr. Taylor - 6 8. The Proposal to Adjust the Balance of Payments by Having Variable Buying and Selling Rates for Foreign Exchange. This proposed method of controlling foreign exchange is subject, in our opinion, to the following disadvantages: (a) Should Brazil's balance of payments turn sharply unfavor- able - as it has in the past - it may be necessary to increase the spread between the buying and selling price as much as 50 per- cent before enough of a change in the balance of trade and ser- vice items is engendered to sufficiently correct the situation. Such broad instability in exchange rates would be a disturbing factor to Brazilian economy of no small dimension. (b) It amounts to a general increase in import duties which strikes at all imports proportionately and indiscriminately. It is a crude instrument because of its lack of selectivity, (c) In so far as its effect upon Brazilian imports is concerned, it. constitutes depreciation of the milreis but without the full stimulus to Brazilian exports that would result from a simple depreciation. (This assumes, of course, that the spread will be created through an increase in the selling price (of foreign exchange by the Bank of Brazil) rather than through an increase in the buying price.) (d) It might operate in favor of those countries which now soll to Brazil on barter or compensation trade basis, since such im- ports might not be subject to the heightened import rate. (e) This method of restricting imports would be a handicap to the prosecution of the industrial development program in that it would increase the cost of enterprises undertaken beyond that estimated at the inauguration of the project. (f) While the plan would not permit discrimination among imports of various commodities or discrimination among various countries (excepting countries with whom trade is carried on under barter arrangements) this lack of power to discriminate may be a dis- advantage to Brazil which is attempting to direct its economy into planned channels of development. Luxuries, for instance, would be given as favorable treatment as imports for essential purposes. (g) It would be impossible to estimate the effect of specified percentage drop in the selling price of exchange upon the bal- ance of payments. In the period of trial and error Brazil may 143 'aylor - 7 lose a considerable amount of foreign exchange and get into difficulties and in this process Frazil may lose a large part, if not all, of its reserves and be forced to utilize the un- desirable devices to control balance of payments. (h) In addition to this plan being a potential tax on imports, it is also a tax on remittances of all kinds, The effect of such a hidden tax might have undesired repercussions on the stability of Prazil's foreign exchange payments. For instance, the foreign businesses operating in Prasil may delay remittances or in anticipation of a change speed them up. This might con- siderably accentuate the fluctuations in Brazil's balance of payments. (if the other possible methods for controlling international balance of payments of Brazil further study may be given to the use of the in- nort perrit system and the possibility of developing sound administra- bion of such a system if administered by the central bank. It is also possible that the State Department's proposal of a verying buying and selling rate be combined with an import system especially during the next few years. One advantage of the device recommended by the State Tepartment 1: that it will provide added revenue to the Prazilian Government. In this connection, however, it should be pointed out that most econ- vists who have studied the Prazilian fiscal system are agreed that razil has in the past relied too heavily upon customs revenue as a source of income. This proposal would amount to an increase of revenue from customs and therefore world not be a progressive step in the de- veloment of the Brazilian fiscal system. Degregation of the Balance of Payments of Those Nations Oranting rce Exchan e to Prazil from Those Countries hich Engage in Compensa- tion Trade. Trie proposal is interesting and may be a cood device for curtail- in- the competitive advantage which compensation trade has over trade involving free exchange. It is possible that the principle involved in this proposal be extended to all remittances between Brazil and Mose countries. Since present trade between Germany and Prazil con- siste of purchases by Termany in terms of blocked currency and pur- chases by Prazil in part blocked and part free exchange, this device will reduce the extent to which American exporters have competition with German products. Furthermore, restrictions on free exchange will restrict lerman penetration in Pracil now carried out by extension of three to six year commodity loans which anticipate compensation trade for the future years. Regraded Unclassified 144 Mr. Taylor - 8 However, safeguards would in such case probably have to develop against the practice of purchases by Germany of Brazilian goods (either directly or through third countries) paid for with blocked exchange and sold to third countries. Unless there were some pro- tection against that type of trade, Germany could slowly absorb a larger and larger share of Brazil's exports and provide a larger share of Brazil's imports. Of course, it must be realized that this arrangement would be onerous to Brazil in that it limits its possibilities of exporting products which it now exports to countries utilizing compensation trade. Brazil would no doubt be willing to accept this disadvantage if the quid pro quo were adequate. Note: This meeting began with a discussion on conferences between Treasuries and was transcribed separately because it had no bearing on the meeting as called -- for discussion of agenda for Brazilian visit. 145 February 7, 1939 3 p.m. Present: Mr. Welles ) Mr. Callado State Department Mr. Briggs Dr. Feis ) Mr. Pierson) R. F. C. (Export-Import Bank) Mr. Taylor Dr. White Mr. Lochhead Mr. Edwards Mr. Welles: As the Secretary of the Treasury seen this digest? (Basia of Discussion with Minister Aranha.) Dr. Feis: I don't believe 80. Mr. Welles: I think the best thing to do then, unless you have some other manner of procedure, 1a to use this as a basis for discussion and then elaborate on each point as we come to it. "The prospective field for discussion with Aranha, the Brazilian Minister of Foreign Affairs, virtually covers the whole of the economic and political relations between the United States and Brazil. If the discussions are successful, this Government may undertake to do various things; in return the Brazilian Government would give certain undertakings and follow certain agreed-on courses of action." Any change since then? HM,Jr: Not as far as I am concerned. Dr. Feis: No change. Taylor has made one sug- gestion which I will mention when we come to it. Mr.Welles: "The following 18 an attempt to summarize 146 -2- this field of action and agreement. It 18 intended to be a plan in which each item 18 but part of a whole scheme intended to serve Brazilian development and prosperity and to improve the basis of Brazilian- American economic and financial relationships. Within this scheme each part of the program must be considered in relation to the other parts." I might interject there to say that obviously what the State Department can do along certain lines will consequently have to be contingent upon what the Treasury Department feels itself able or desirous of doing. It's an interrelated whole. "Part I. Many considerations Join to justify willingness on our part to extend financial and eco- nomic assistance to the Brazilian Government. On the basis of preliminary correspondence, Aranha undoubtedly expects to be able to secure proffers of assistance. "This assistance might take any one or all of the following forms: "(1) Technical cooperation for the creation of x central bank in Brazil and the loan of funds to Brazil for the augmentation of the reserves of this bank. Such 8. loan might include the provision of gold and, in part, might be kept within the United States. Operations of the bank would have to be directed in such B. way that the reserve could reasonably serve its normal function of meeting temporary external difficulties without being placed in danger of being rapidly dissipated in payment of excess imports by Brazil. "Whether in addition there might be created 8. Stabilization Fund is a matter to which perhaps the Treasury will want to give consideration." Mr. Welles: Don't you think we ought to take these up for consideration point by point? HM,Jr: Could I ask this question. I am sorry I have to do my homework here now, but this 18 my first chance. Am I correct that the Brazilian Government has indicated they want our assistance to organize a Central Bank? 147 Mr. Welles: They indicated that, if you remember, four years ago. HM,Jr: Yes. Well, if they want that, what be- tween the Federal Reserve and people I can get in, like Professor Williams who has been down there, we will be ready to give them that assistance. But I think, I take it your attitude is going to be "we would like to help you if you tell us what you want". Mr. Welles: Yes. On the other hand, for Aranha to arrive here with all these highly important questions still in & perfectly nebulous state without our being able to say yes or no to certain of the matters that may come up would seem to be to involve a pretty unsatisfactory prospect and would bring us back to the situation where we were four years ago. HM,Jr: (reading) "Technical cooperation for the creation of & central bank in Brazil and the loan of funds to Brazil for the augmentation of the reserves of this bank." Are we prepared to give that? The answer 1s "Yes." Mr. Welles: But the next sentence saya, "Whether in addition there might be created a Stabilization Fund is a matter to which perhaps the Treasury will want to give consideration." HM.Jr: That gets into the agreement that we have now, of which they have never made any use. Mr. Welles: That was not 8. loan, Henry. HM,Jr: Against stabilizing their currency. Mr. Welles: That was an arrangement which was simply & purchase on the installment plan by Brazil of gold from the United States. Mr. Lochhead: It brings up the question of loaning gold and whether we have the power to do it. Mr. Welles: I think the Treasury Department, as I understand, has been studying this during the last 148 three or four days. Mr. Taylor: I think Dr. White can indicate, on this particular point -- he has 8. memorandum which he has prepared and which I think if you ask him to read that it would clarify HM,Jr: Let me Bee how we are going to do this. What I thought that out of this business, I don't -- 1a this all financial? Dr. Feis: No, sir. Mr. Welles: Some of it is financial and some is clearly Export-Import Bank and some is clearly within the province of the State Department. HM,Jr: CIY, I would say, is definitely Treasury. Mr. Welles: Yes. HM,Jr: And if I could have the deadline -- we haven't much time. Mr. Welles: May I interject something right here. The President arranged --asked me to arrange with you to Bee him Thursday morning to give him our clear-cut plan of what we thought should be done. HM,Jr: I will tell you (Mr. Welles) afterwards why I am smiling. Dr. Feis: I think if you read (1), (2) and (3) together, you may then want to consider the question of method in regard to the three of them together. Mr. Wellee: (reading) (2) A long term loan to be used for productive purposes within Brazil -- such purposes to be generally agreed upon in advance. This loan would presumably be accompanied by an arrange- ment providing that the part of it used to finance 1m- ports would be spent in the United States. "Some such loan transaction might be within the power of the Export-Import Bank. However, there are reasons for preferring to handle it on the basis of 149 -5- "congressional authorization. "(3) As part of a plan for clearing up present delays in the provision of exchange for exports from the United States, and for preventing the recurrence of such frozen exchange indebtedness, the Export-Import Bank might to a limited extent participate in B. plan devised for this purpose. Two previous "un-freezing" arrangements have been ineffective. It is believed that the Brazilian Governmentitself should find the means for paying off a part of these exchange arrears, and that if the rest 18 converted into an obligation, this obligation should run for as short 8. term as is feasible. No attempt has been made to decide exactly how far the Bank should go in participation, but pre- vailing opinion is that if it discounts the paper issued by the Brazilian Government for this purpose, it should be with recourse against the American exporter." Mr. Welles: Now those three points, in my Judg- ment, are clearly within the determination of the Treas- ury Department. Dr. Feis: Besides the question of policy, they raise the question of authority and as far as I have been able to ascertain -- as for (1) I would say question to be decided: whether Treasury or Stabiliza- tion Fund has authority to make such a loan? As for (2), the public works thing, there 19 question of whether Treasury or Export-Import Bank has authority. Aa to (3), it seema fairly plainly within the authority of the Export-Import Bank. You have three, at least two troublesome questions of authority. Unless it 18 decided that that authority exists or can be obtained, why it's, it will be obviously risky to enter into discussions with Aranha on the sup- poeition that he can secure financial help, which 18, of course, a universal supposition. Now, as to the means of getting assistance, get- ting necessary authority, I must say the suggestion that appealed to me most WAS Wayne Taylor's suggestion. The question of renewal of the Bank charter 18 coming up 150 -6- anyway. That if we could get that charter amended BO as to make it quite clear to Congress and the public that the Bank would have the authority to undertake any such types of operations as we designated here, if you then get that power you have it for Brazil and for any other situations of similar character you want to deal with. I just mention that suggestion. I have no doubt of alternative ones, but I do urge consideration of the question of determining what we have to do in a financial way or what authority we wish to seek -- 1B the essential first question before we enter into talk with Aranha. Mr. Taylor: It seemed to me in making that suggestion that I don't think it 18 necessary to amend the charter of the Bank, but that if in the discussions down on the Hill it clearly brought out that this type of operation not only 1a envisaged but is possible, that that 18 probably the place to do it. When we find out, fairly soon, what the attitude of Congress 18 about the Export-Import Bank Mr. Pierson: Tomorrow at ten o'clock. Mr. Taylor: Mr. Pierson, tomorrow, is going to get on the stand down there. Chances of getting through a specific piece of legislation, let's say, giving new authority to make specific loans to other countries or various other types of things, it seema to me, 18 not too good, but I think that we will have explained to Congress and given them every opportunity to act on the thing if we do it in the way I have suggested. Mr. Welles: I am very much of that same opinion. Don't you feel, however, that with the exception of one or two people on the Hill that the general tendency would be one which would be decidedly favorable towards the kind of arrangement which 18 envisaged here in this memorandum, provided it is undertaken with other American Republics? Mr. Taylor: I think go, but I think if we tried to introduce a specific piece of legislation we would Regraded Unclassified 151 -7- run into serious difficulties. Mr. Welles: I quite agree. Mr. Taylor: Whereas by explaining fully to Congress the type of thing that the Bank can do when it appears in the National interest to do it, you are using the proper vehicle; you are giving full expres- sion to any views that may be presented and you also keep it more in its proper setting. Mr. Pierson: Does anyone have in mind that the Bank would be expected to do more than it has in its Haitian contract, except in so far as a larger sum might be involved? There we undertook to finance a public works program which involved purchase of goods in the United States, use of American services. A certain part of the funds are expended in Haiti. That has caused no alarm or unrest any place. Dr. Feis: I think the operation under No. (1) is of a different kind. Mr. Pierson: I was down to (2). Dr. Feis: There 1s also & question of authority under (1). Question of authority right down the line. Mr. Pierson: I don't think the Bank, under its present powers, would feel very happy about a loan of gold to Brazil which 1s used for something not directly connected with trade. Mr. Taylor: If that is brought out in your dis- cussions, however, before Congress that that type of operation could be considered, why I think you will have met that question. Mr. Pierson: I am afraid if it 18, it will not be renewed. Mr. Welles: of course, it will have to be clearly understood what we had in mind. Mr. Taylor: That's a question of opinion. Mr. Pierson: I can tell from letters I am getting Regraded Unclassified 152 -8- there 18 common uneasiness on the Hill about the possibility of the Bank extending itself some distance. HM,Jr: You may be interested, as far as the Chinese loan, I think I have yet to receive my first letter of criticism and I got a large mail. I don't mind your quoting me when you go up on the Hill. Mr. Pierson: Letters we have had have had to do with American Republics more than the Chinese loan. HM,Jr: I mean, my name was associated with it, but I have yet to get my first letter of criticism. Mr. Pierson: Ours are almost 90 - 95% from those who own bonds that are now in default. HM,Jr: That's another story. Mr. Welles: Perhaps the best thing would be to go on reading the rest of the agenda. "Part. II. The conditions under which these loans might be made and the agreements and arrangemente with which it would be advisable to accompany them. "If these actions are to serve their purposes of contributing towards the economic development and stability in Brazil and the improvement of relations between Brazil and the United States, the Brazilian Government should at the same time deal with various outstanding difficulties and put into force policies that will prevent their recur- rence, and enable this financial assistance to produce the results desired. "The main steps of this character which the Brazilian Government might be asked to consider outside of any agree- ments having to do directly with the creation of a central bank are: "(1) Elaboration of the necessary agreements on the basis of which the central bank and public works loans might be made. "(2) Development and fulfillment of the plan for resumption of service of the present Brazilian defaulted Regraded Unclassified 153 -9- "debts. This scheme would of necessity provide only very modest payments, at any rate in the immediate future, and also perhaps permit Brazil to reacquire part of this debt at prices prevailing after loan service was resumed. (3) Understanding as regards the possibility of American enterprises in Brazil remitting some earnings as interest or dividends. "(4) Understanding in regard to the position of American enterprise in Brazil. Mr. Welles: That has to do with certain pending legislation which, if enacted, would seriously endanger American enterprises operating in Brazil, such as insur- ance companies, banks. "Agreement upon and enforcement of arrangements and policies which would (a) Include necessary measures to deal with the present overdue exchange indebtedness. (b) Administration of policies to ore- vent the creation in the future of similar exchange arrears. (c) Arrangemente to assure prompt pro- vision of dollar exchange for future American exports. (a) Arrangements that would safeguard the competitive position of American trade in the Brazilian market, particularly in respect to the competition of trade carried out on the basis of compensa- tion or payments agreements. This set of problems has attended Brazilian- American commercial relations steadily during the past few years. It 18 to be hoped that when and as Brazilian external economic af- fairs can be put on & more stable and assured 154 -10- basis, they will just disappear. But in the meantime, it 18 deemed important to have arrangements adequately dealing with them, and proposals that seem to meet di- verse difficulties and requirements not too unsatisfactory are set forth in the following Part III. "Part III. Elements of possible program to deal with existing difficulties in the exchange and trade field. "These difficulties have figured largely in our previous discussions with both Aranha and Souza-Costa and have been the subject of a vast amount of subsequent discussion. A great variety of suggestions has been put forward. No attempt will be made in this me moran- dum to examine all the alternative programs that might be put before the Brazilian Government for consideration as an adequate way of dealing with the situation. The committee has rather, on the basis of its discussion, tried to formulate that program which seemed to it the most promising and satisfactory preliminary basie of discussion with the Brazilian Government (bearing in mind that the program (a) must be reasonably effective, (b) acceptable to the Brazilian authorities, (a) not in conflict with our general commercial policy, (a) not giving ground for other countries, especially Germany, to claim that they are being unfairly pressed as part of a financial deal between ourselves and Brazil. "The essentials of the suggested basis of discussion are as follows: (a) That the present trade agreement between Brazil and the United States be retained in force. Reiteration of the Brazilian policy to so safeguard its trade arrangements with other countries as not to impair the natural and anticipated advantages of the Brazilian-American trade agreement. (b) That the Brazilian Government give a clear reiteration of the pledge contained in the exchange of notes accompanying the Brazilian-American trade agreement to the effect that it would make dollar exchange immediately available for the payment of exports from the United States (this might be supplemented and made more significant 55 -11- by a further statement that the Bank of Brazil would undertake to keep in the United States at all times a fund for the provision of the necessary dollar exchange). (o) That Brazil will undertake as long as its prod- ucts are sold in the United States for free exchange, not to make any of the free exchange available for the payment of goods from countries which do not permit the acquisition of free exchange in payment for Brazil- lan products. (d) That the Brazilian Government should work out a plan for dealing with the present overdue exchange arrears, providing cash for some refunding of the rest on as favorable terms as possible to the creditors. (e) That in order to prevent the recurrence of this situation, the Brazilian Government have effective arrangements whereby the total exchange liabilities occurring will not be in excess of the exchange avail- able. of the alternative means of achieving that and it 1e suggested that the Brazilian Government might well consider the inauguration of a policy whereby it enforced flexibly differential buying and selling rates of exchange, Under such & scheme the size of the differential could be varied according to the necessity of discouraging 1m- ports at any given time. Besides the quality of flexi- bility this arrangement would have the merits of not in- volving automatically any discrimination as between Brazil B sources of supply and of further making exchange available to the Brazilian Government at a favorable rate. "If such a policy were effected, the Brazilian Government should promise that exchange would be provided for exports from the United States on 8. most-favored- nation basis (that the spread between the buying and selling rates applicable to American commerce should not be greater than that applicable to the commerce of any other country, including the commerce conducted under compensation arrangements). "This still would leave it possible for Brazil to establish a scheme of cross-rates applying to the trade with Germany and other compensation countries that would leave American trade at its present disadvantage or in- increase that disadvantage - if the Brazilian Government Regraded Unclassified 156 -12- "80 chose. In that respect, we should be dependent upon the general pledge mentioned in (a) above - to effect which Brazil might have to continue to limit the quantity of its exports for blocked currencies. (f) It would be agreed that there should be a periodic joint audit (possibly carried out on the basis of cooperation between the two central banks) of the exchange position of Brazil for the purpose of studying the effects of these arrangements and guaranteeing their satisfactory operation. "Part IV. "As stated above, it 18 to be hoped that internal and external economic conditions in Brazil will 80 develop that the Brazilian Government will not need to exercise the methods of control which are the subject of the preceding section. To contribute to that outcome -- and in logical connection with any plan of public works financing -- attention should be given to the long-run study of economic development in Brazil. "This might well, as a first step, Justify the creation of & Joint committee to study the question of the means of promoting the production and sale of complementary products, such as rubber, 0000a, manganese, It is believed that there 18 much to be hoped for in this field. "Part V. "It 1s suggested that an additional possible field of arrangement that could be worked on at the same time AB the preceding is the matter of the acqusition by the United States from Brazil of certain commodities on our strategic raw materials list. These would be delivered to the American Government for storage pur- poses. The provision of such materials might well be used to pay off in part the loans to be made. HM.Jr: On the whole, I think it 1s an excellent memorandum. I think this 18 an excellent memorandum. I say I am sorry, for one reason or another, I have not had a chance to study it. I realize time 18 pressing. I would like to take it and read it. There are certain 157 -13- aspects of it I would like to discuss with you (Mr. Welles) if I might, in preparation of our seeing the President. Have you a few minutes to stay now? Mr. Welles: Yes, indeed. HM,Jr: I would appreciate that. TREASURY DEPARTMENT 158 INTER OFFICE COMMUNICATION DATE February 10, 1939 TO Secretary Morgenthau FROM Mr. White Subject: Summary of Data on Brazil 1. Bracil's debt situation. (a) Total indebtedness of the Federal Government of Brazil 18 about $950 million. of this sum the external debt 18 $695 million; the internal debt is about $255 mil- lion. (b) The Federal Government budget provides $45 million for the servicing of the public debt. of this sum $13 million is for interest on the domestic debt and $12 million, in the form of blocked milreis, 18 applied to the account of the foreign debt, and $20 million 18 set aside to service the flosting debt. The sum allocated in the Federal budget for servicing both domestic and foreign debts amounts to one-fifth of the total budget expenditures. (o) The internal debt of Brazil is not in defsult. The external debt of Brazil was in partial default from March 1934 to November 1937, and has been in complete default since November 1937. Under the Aranha plan in force be- tween March 1934 and November 1937 interest and amortize- tion payments were scaled down to less than half. Pay- ments during those four years totalled $163 million. (d) The total external debt of Brazilian governmente including State and munic) palities 1e $1,140 million Debt in dollar bonds $ 360 II Debt in sterling bonds (equal to) 735 # Debt in franc bonds (equal to) 45 1 2. Foreign trade of Brazil (a) Brazil during the post war period, except for depres- sion years, had 8 favorable balance of trade of $50-$100 millions. In 1937, however, the balance dropped to $17 mil- lion end in 1938 the favorable balance was completely wiped out. Secretary Morgenthau - 2 159 (b) Brazil's exports were $350 million in 1937 and dropped to about $270 million in 1938. (c) Brazil's imports have risen steadily from $200 mil- lion in 1934 to $330 million in 1937. They dropped in 1938 to about $270 million. (d) Brazil normally has 8 large favorable balance with the United States, ranging from $50 to $75 million in the past five years. In 1938, however, the favorable balance will probably drop to less than $30 million. Brazil had an unfavorable balance of trade with Germany and with the United Kingdom during the past five years. 3. Brazilian foreign exchange situation. (a) It is estimated that the total blocked balances in Brazil on account of exporters and private foreign busi- nesses in Brazil, 18 $65 million, of which $25 million are blocked accounts which go to the United States. This 18 B. rough estimate and more accurate figures will doubt- less be obtainable from Mr. Aranha. (b) Brazil can acquire substantial amounts of foreign exchenge only through a favorable balance of trade or through capital imports. Her needs for outpayment con- sist of $40 to $60 million a year for remittances of foreign companies operating in Brazil, and for servicing private foreign debt. At the present time she has a fur- ther need of roughly $65 million in foreign exchange to clear up all existing arrears. Therefore, Brazil needs a favorable balance of trade in 1939 of at least $100 million if she 1s to clear up the arrears and meet the foreign exchange obligations during the year. If the debt settlement 18 on the basie of out- payments of $25 millions, Brazil will need B. favorable balance of trade of about $125 millions. This sum 1a greater than the balance of trade in any year since 1919. (c) It should be noted in this connection that Brazil has been importing armamente on a large scale. It is estimated that imports of armaments amounted to $60 mil- lion in 1938 and she already has contracts outstanding that would involve an expenditure of $25 million in 1939. Miscellaneous (a) We have been able to find eight instances in which foreign governments have scaled down their debte by re- duoing the amount of principal. (Three of these instances are mentioned in Mr. Feis' own book entitled "Europe, the World's Banker, 1870 to 1914".) Regraded Unclassified 160 Secretary Morgenthau - 3 (b) The Argentine Government's external debt is only one-third 8.8 much 86 Brazil's, amounting to $375 million. The internal debt, on the other hand, 1s much larger, amounting to $1,100 million. There 18 much more foreign capital invested in Argentina than in Brazil and requires more than $100 million of foreign exchange per year to remit profits and interest on the se foreign inve stments. Argentina has not defaulted on any of her foreign or domestic debts. She also has more than ten times as much gold and foreign exchange than has Brazil. In 1937 Argentina was able to reduce this outstandingfbreign debt by $150 million. Brazil, of course, was not even able to pay interest on her foreign debt. 2-10-39 161 American Direct/Investment in Brazil American capital is invested in Brazil through (1) wholly owned American, Ill midiaries, (2) Brazilian companies in which American capital is in control, (3) Trazilian companies in which American investment is substantial but not necessarily controlling, (4) Miscelleneous investments AS of December 31, 1936, it was estimated by the Department of Com erce that Am ricon direct investments totalled $194,345,000, divided as follows: (In thousands of dollars) Number Oranizations Value Manufacturing 30 50,183 Distribution 25 15,612 etroleum 4 32,678 Public Utilities and Transportation e 84,411 Miscellaneous 13 11,461 81 194,345 - Includes agriculture, mining, etc, The Repartment of Commerce estimated American investment in industrial enterprises in 1918 as $50,000,000, and in 1925 as $100,000,000. At the end of 1933, direct investments were estimated at $197,000,000 (book values). Following are some of the companies which have are operating in Brazil, either wholly owned, or with substantial American investments: United States Steel Corp. - manganese mines, shipping Wilson & Co. - meat Swift è Co. " Armour Co. " Brazilian Traction, Light & Power Co. Ltd. International Telephone & Telegraph Co. Electric Bond k Share Co. American Foreign & Power Co. Intercontinents Power Co. Rosslock Brazil Co. - cotton seed oil mills Caloric Oil Co. - bunkering and oil distri ution Atlantic Refining Co. Standard Oil Co. Texas Co. DuPont de "emours Singer Sewing Machiner Co. Regraded Unclassified 162 United **** Shoe Machinery Co. Deneral Electric Co. All America Cables Co. Diawond Match Co. Ford Motor Co. - rubber plantations and auto plants General Motors International Machinery Co. Worthington Pump & Machinery Co. Ra to Corporation of America Ulen & Co. The Foundation Company Westinghouse Electric & Mfg. Co. Source: Dunn - American Foreign Investments Winkler - Investments of U.S. Capital in Latin America Dept Commerce - American Direct Investments in Foreign Countries - 1936 2-10-39 183 Brasil's Debt Situation 1. The total debt of the Brasilian Government (a) Total outstanding debt of the Federal Government of Brazil is about $950 million. Of that sum about $250 million is the domestic debt (pay- able in milreis). The amount allocated in the budget for servicing these debts, as recorded in the budget for 1939, was $45 million. This included $33 million for the domestic debt, and the remainder, in blocked milreis, to be applied to the account of the foreign debt. 2. The internal debt of the Brazilian Government. The internal Federal Government debt of Brazil is (1250 million. Brazil is fully servicing her Federal Government domestic debt. The total payments set aside this year for servicing the debt is $33 million. Payments are, of course, in milreis and no defaults have taken place, nor have the interest payments been scaled down. Both interest payments and amortization payments on the Federal domestic debt amount to about one-fifth of the total Federal Government budget expenditures in 1939. 3. The external debt of Brazil. (a) The total external debt of Brazil (including State and local governments) now outstanding is $1,140 millions in bonds, exclud- ing interest arrears. Debt in dollar bonds 6360 million is " sterling bonds 735 If If EF franc bonds 45 " Total $1140 " Of the total outstanding funded debt of $1140 million: Debt of Federal Government is $ 697 million " " State # # 285 Il If B Municipalities " 108 II If If "Coffee Defense" (guar- anteed by State of Sao Paulo) 50 " $1140 164 - 2 - Brasil's total foreign debt has been in complete default since November 1937. She has not paid any interest or payments on principal since November 1937 when the Aranha plan was dropped. However, the Federal Government appropriates milreis balances to help toward ultimate servicing, and the milreis are blocked in the Bank of Brasil. In 1939 about $12 million (in milreis) were included in the budget for that purpose. These funds presumably are available for agricultural loans by the Bank. 4. The Aranha plan for foreign debt payment. The full service of the outstanding debt (including Federal, State, and municipal) would have required interest payments of roughly $70 million and amortization of $30 million, but the Aranha plan out the payments less than half. The Aranha plan was in force from 1934 to November 1937 though it was supposed to run through December 1937. The plan called for payments of amortization and full interest on 20 percent of the debt, and partial interest on all but 5 percent of the balance. Payments started at 835 million in 1934 and increased yearly to $45 million in 1937. Under this plan a total of $163 million was paid, the bulk of which was on account of interest. The payment of this $163 million over the four year period retired, according to Aranha, coupons having a nominal value of $440 million. The Aranha plan was accepted by the foreign bondholders under protest. The division of the payments among the three countries, particularly as between American and British bond- holders, was a matter of much controversy with Dr. Reuben Clark representing the United States interests and Sir Otto Niemeyer representing the British. The Federal Government has been in default of her external debt twice before; each time the arrears were funded (in 1898 and 1914). At no time were either the interest or principal scaled down. The record of the State and municipal governments servicing of foreign debts is very uneven. Two of the States - Sao Paulo and Rio de Janeiro -, and the city of Rio de Janeiro, had a perfect record until 1930. Other States and cities have defaulted from time to time. Brazil's Foreign Exchange Situation _C5 I. Present blocked balances. 1. It 18 estimated that the blocked balances in Brazil now amount to about $60 million, mede up as follows: (a) To exportere in U.S. 15 million (b) If # of other countries 25 IS (c) Profits and interest on private sccount due U.B. 10 If (d) " 16 a II # II in other countries 15 H Total blocked accounts to U.S. 25 " " 11 " " other countries 40 all 2. How much foreign exchange does Brazil need in 1939? (a) Before exchange control was introduced (1931) Brazil remitted each year for dividends, interest, etc., to all foreign countries on private account about $60 mil- lion. If interest, dividend and profits were free to leave the country, probably from $30 to $50 million of foreign exchan would be used up in 1939. (b) Exclusive of any payments on the Brazilian Govern- ment's foreign debte Brazil would need about $65 million to clean up on present blocked accounts, and about $40 million more during 1939 to meet remittances of interest, dividends, etc. on private account. (c) Feis mentioned 8. possibility of scaling down of interest payments to 2 percent. Were this to be accepted it would call for outpayments of $25 million 8 year, allowing for no payments on account of principal. (d) Altogether Brazil would need on the above basis about 8100 million of foreign exchange - about half of which would go to the United States, exclusive of payments on her foreign debt. 3. How much foreign exchange can Brazil accumulate next year? (a) Brazil now has $33 million in gold assets and practically no foreign exchange. This 18 her only monetary reserve and she would be most reluctant to let any part of it go. (b) She has stepped up her gold production to about 87 million 8. year. Regraded Unclassified - 2 - (c) She produces practically no silver. (d) Her balance of trade for 1939 18 very uncertain, owing to its chief dependence upon prices of coffee and cotton. Ae things look now it 1s not likely this year's exports will increase by more than $50 million - or 15 per- cent. (e) She can cut down her imports by government action and by curtailing her expenditures on armaments. Her ex- penditures on armament imports for next year are going to be at least $30 million on outstanding contracts, and we do not know how much more 1s contempleted. In 1938 Brazil ex- pended $60 million on imported armaments. Conclusion: If: (a) Brazil can cut her armament imports in half, (b) If her export situation becomes favorable, and (c) If payments due on her government debt are scaled down to $25 million: Then, Brazil can, we believe, clean up her arrears during the present year and meet her necessary outpayments during 1939 without any financial assistance from us. But, should her export situation not develop favorably and should she not curtail her armament imports she will be as bad off 8. year from today as now (assuming, of course, we do not extend her credits that she can employ to clean up present blocked balances, or finance some portion of her 1m- ports). 186 A. Significant features of the Brazilian proposal: 1. The capital stock of the corporation will be the equivalent of $5 million. The Brazilian Treasury vill eub- scribe 60 percent of it. The balance will be sold to the public in Brazil and in the United States. It will be a limited dividend corporation with the maximum return on stock being 8 percent and the minimum return of 4 percent represed (by the Brazilian Government) Eighty percent of the profits of the company in excess of the 8 percent dividend will be devoted to reducing the liabilities of the company and 20 percent will be added to reserves. 2. The corporation will obtain most of its operating funds from a bond issue of $100 million in the following canner: $50 million to be supplied by the United States Government, and $50 million of bonds to be sold to the Merican public. However, Americans will be permitted to subscribe to the equivalent of 825 million of the public issue with blocked milreis. The bond issue will be at n percent interest and will be guaranteed by the Brazilian Treasury. The United States Government will agree to recilitate additional loans to the corporation at 4 percent interest, the loans to be guaranteed by the milreis capital of the corporation. 3. The corporation will agree to buy in the United states the imported materials it will need in its construc- tion activities and the company will utilize the services of American technicians. 4. The corporation will carry out the sale of Brazilian NOW materials and products in the United States and those companies which purchase Brazilian raw materials will be given preference in the export of their products to Brazil. 5. There 18 some ambiguity as to the time length of the loan; in the proposal it 1e stated that the loan will De redeemed at the end of five years: however, the loan will be smortized at the rate of 34 million a year, which would be a twenty-five year loan. 6. The proposal contains the provision that the Brazilian Government will give preference in its purchases to the prod- vots of industries developed by the corporation. There 18 also a provision limiting the sums which the company can spend in administrative expenses to 81 million per year. 7. The corporation's activities will be directed towards the acquisition of mining properties in Brazil, the expansion of industrial activity, particularly the development of an iron and steel industry, the renovation of the rolling stock of the Brazilian railroads, and the development of the produc- tion of rubber, vegetable oils and petroleum. 167 - 2 - B. Some questions raised by the memorandum: 1. It would probably be very difficult to float a loan in this country of 4 percent bonds, of which at least $25 million 18 to be sold to the American public. 2. The subscription for $50 million of bonds by the United States corporation may be carried out through the Export-Import Bank or would need Congressional action. 3. The activities proposed for the corporation are such as probably will not yield & profit for some years after commencing operations. The plan should probably be modified in part to adjust to this fact. 5. There 18 no specific provision for participation in the control of the corporation by American interests or by United States Government representatives during the early years. 168 - 2 - B. Some questions raised by first reading of the proposal: 1. It would probably be very difficult to float B. loan in this country of 4 percent bonds, of which at least $25 million is to be sold to the American public. 2. The activities proposed for the corporation are such as probably will not yield a profit for some years after commencing operations. The plan should probably be modified in part to adjust to this fact. 3. There 18 no specific provision for participation in the control of the corporation by American interests or by United States Government representatives. 4. The subscription for $50 million of bonds by the United States corporation may be carried out through the Export-Import Bank or would need Congressional action. 169 PIA. POLICY TO BE FOLLOWED IN ORGANIZING THE CENTRAL RESERVE BANK OF BRAZIL Regraded Unclassified 170 OPIA. CAPITAL: The Central Reserve Bank of Brazil shall have an initial capital of 50,000 contos, with the possibility of it being increased. There is no necessity of establishing the bank with too large a capital, as this would cause a tendency for obtaining large profits, capable of remunerating 8. number of shares excessively high, which would defeat the purpose of establishing B cheap credit for legitimate economic activities. Later, after it has been proved in 8 practicel manner that the bank operating under normal conditions is able to take care of its running expenses and to pay a reasonable dividend, the capital could be increased. GOLD RESERVE: Assuming that the minimum gold reserve (gold and currency) would be 30% of the total amount of the paper currency in circulation and other immediate obligations and since Brazil at the present time does not dispose of the necessary resources to fully establish such reserve, it should be built up gradually in the following manner: a) Gold which will be delivered by the Federal Government as part payment of the debt arising from the transfer of the responsibility of the currency circulation; b) Obligations to be issued by the Federal Government to 8. total which will cover the difference between the minimum gold reserve amount and the gold value non- tioned under item "a". These obligations may only be sold by the Bank in the free market to buy currency, provided that the situation of both the capitel and exchange markets will stand such an operation. The currency bought in this manner will revert, then, to the gold reserve Regraded Unclassified 271 OPIA. -8- reserve balance, with the faculty of being transferred into metal, as guaranteed by the recent agreement with the United States Government, The Brazilian Government can also, by purchasing gold mined in Brazil, which will be delivered to the bank, redeem the obligations issued in values correspond- ing to the metal thus delivered. However, it shall in any way redeem, annually, a certain part of the afore- said obligations. In this manner the total issues of bonds will only tend to decrease and to be transformed gradually into gold. BANKING LEGISLATION: In the banking legislation which 1s to be passed simultaneously with the creation of the Central Reserve Bank, the commercial banks shall be obliged to have minimum re- serves for their current accounts and time deposits, 50% of which will be compulsorily deposited in the Central Reserve Bank. In the same manner as the United States Federal Reserve System adopted through the Aot of 1935, the Central Bank of Brazil will have the faculty of modifying the minimum limits of these reserves. GOVERNMENTAL CONTROL: AB has been found advisable in view of present world trends, the Federal Government must have a prepon- derent influence in the magement of the Bank, so as to place it in tune with the legitimate economic interests of the country. Regraded Unclassified 172 OPIA. THE PROBLEM OF THE EXTERNAL DEBT 1 - The suspension of payments of the external debt of Brazil - Federal and State as well AS municipal - is no longer a subject of debate, since the absolute impossibility of transferring the funds necessary for such payments, which the Brazilian Government faced on November 10, 1937, has become evi- dent from the following trade figures. Year Exports Imports Balance (in pounds sterling) 1928 97.426.000 90,668.000 6.757.000 1929 94,831.000 86.653.000 8.177.000 1930 65.745.000 53.618.000 12.127.000 1931 49.543.000 28,755.000 20.788.000 1932 36.629.000 21.744.000 14.885.000 1933 35.790.000 28.131.000 7.658.000 1934 95.239.000 25.467.000 -9.772.000 1935 33.011.000 27.431.000 5.580.000 1936 39.069.000 30.065.000 9.003.000 1937 42.529.000 40.607.000 1.922.000 1938 36.537.000 35.834.000 523.000 The suspension was not, therefore, a mere official act, nor was it in any way a result of a political transformation or of an alteration of the traditional policy of Brazil, but in- deed an unavoidable and imperative imposition of facts, proved by actual figures. II - Other factors, equally independent from the vill of the Brazilian Government and from the labour of the Bra- zilian people, were added, some of which derived from the decrease in value of our foreign trade, and others from universal phenome- na, which were likewise beyond all control; such factors also having contributed, not only to create the impossibility of pur- Regraded Unclassified 173 OPIA. - 2 - pursuing the payment of the external debt, but also that of re- suming, even now, the service of the debt. Year Exports Minus difference AS compared with figures for the year 1929 (in pounds sterling) 1928 97.400.000 ---- 1029 94,800.000 ---- 1930 65.700.000 29.100.000 1931 49.500.000 45.300.000 1932 36.600.000 58.200.000 1933 36.800.000 58,000.000 1934 35.200.000 59.600.000 1935 33.000.000 61.800.000 1936 39.000.000 55.800.000 1937 42,500.000 52.300.000 193F 36.537.000 58,443.000 566.857.000 478.543.000 III - At the beginning of the world depression, Prazil possessed in its Treasury upwards of thirty million pounds sterling, in addition to large commercial credits abroad, which tended to keep up the volume and value of foreign trade. The depression, however, entailing, as it did, the sudden closing of bank accounts, especially in the United States, forced the Bra- zilian Government to use its gold reserves for the hesty liquica- tions imposed on the economy of the country. Brazil set, in that circumstance, a standard of effort and sacrifice which has been surpassed by none, in the hope of retaining its credit and deserving the cooperation of its creditors. IV - The result of such efforts vas unfortunately negative, not only because foreign credits were not maintained - which would have been indispensable in order that the volume and Regraded Unclassified 174 OPIA. - 3 - and value of foreign trade should not fall off - but also because normal banking credits vere reduced to insignificant amounts in several countries, and entirely suppressed in the United States, from which quarter we could least expect such a line of action, considering the punctuality with which our obligations in that country had been met, even at the low of the depression. Such a situation brought about, as & matter of course, the devaluation of Brazilian currency, as follows: - Precentages of depreciation of the milreis Year Free quotations Official quotations 1928 0,0% - 1929 1,3% # 1930 9,1% - 1931 37,8% 47,8% 1932 - 40,5% 1933 - 47,1% 1934 66,5% 57,8% 1935 71,2% 57,9% 1936 71,3% 57,3% 1937 70,0% 57,3% 1938 - 71,3% The price of imports has doubled, and the price of exports decreased, both in terms of pounds and of milreis, so that we have been compelled to more than double the volume of our exports, in order to attenuate the decrease in the total value of transactions. The lack of funds available abroad was naturally followed by the scarcity of means at home, thus aggravating the depression in the general economy of the country. V - Brazil faced that emergency in a spirit of ab- solute self-sacrifice, trusting that her conduct would tend to re- establish the situation of good-will and cooperation between coun- Regraded Unclassified 175 - 4 - OPIA. countries, which had existed prior to the depression and indis- pensable to the progress and welfare of each and every Nation. Year Favorable balance of Remittances for the foreign trade service of the ex- ternal debt (in pounds sterling) 1928 6.757.000 16.135.000 1929 8,177.000 17.390.000 1930 12.127.000 19.883.000 1931 20.788.000 17.689.000 1932 14,885.000 6.682.000 1933 11.296.000 6.449.000 1934 16.033.000 7.108.000 1935 9.049.000 7.494.000 1936 14.811.000 8,012.000 1937 3.329.000 9.900.000 117.252.000 116.742.000 VI - The above figures suffice to demonstrate: e) that Brazil, in the most difficult periods, paid its debts, even when it involved the secrifice of gold reserves and the assessment of heavy internal contributions for that purpose; b) that Brazil has reached the extreme limit of self-sacrifice, making remittance of the whole of its favorable trade balance in order to fulfill its obligations, under the so-called "Oswaldo Aranhe scheme"; c) that payments were suspended only on Novem- her 10, 1937, after all possible resources had been exchausted, and owing to the absolute material impossibility continuing the payments. Regraded Unclassified 176 OPIA. - 5 - payments. VII - The situation which forced the Government to suspend payments in 1937 was not altered for the better in 1938; on the contrary, during that year there was every indication of increasing difficulties. Foreign trade figures for the year 1938 show E still decreasing value of exports in terms of gold and an increasing velue of imports in terms of milreis: the pur- chasing and paying capacity of Brazil is steadily decreasing, in free currencies, because the value of Brazilian exports to coun- tries trading in free currencies is decreasing, notwithstanding the increase in quantity of such exports. Such countries (United States, Great Britain, France end Argentine) purchased from Brazil in the five years extending From 1928 to 1932, merchandise worth £225.167.000, gold currency, egainst only £115.347.000 in the five years following (1933- 1937). The annual average during the former period vas 849.033.000, against £23.069.000 for the latter, and only £19.103.000 for the year 1938. Foreign Trade Balances Year U.S.A. Great Britain France Argentina 1928 +20.189.000 -16.164.000 + 3,176.000 -4.678.000 1929 ₱ 13.921.000 -10,468.000 + 5.948.000 -3.451.000 1930 +13.567.000 - 4,948.000 t 3.356.000 -2.690.000 1931 +14.424.000 - 1.458.000 + 3.244.000 -1,264.000 1932 +10.222.000 - 1.604.000 + 2.165.000 + 590.000 1933 $10.759.000 - 2.792.000 + 1.830.000 -1.713.000 1934 + 7.773.000 - 102.000 + 1,561.000 -1.487.000 1935 + 6.612.000 - 354.000 1.737.000 -1.916.000 1936 t 8,528.000 + 1.277.000 +1.997.000 -3.355.000 1937 t 6.056.000 - 1.052.000 1.743.000 -3.678.000 1938 + 3,373.000 - 267.000 1.268.000 -3.180.000 Regraded Unclassified 177 OPIA. - 6 - Summary 1928 to 1932 +72.323.000 -34.642.000 +17.899.000 -11.493.00 1933 to 1937 439.728.000 - 3.023.000 + 8,868.000 -12.149.00 BRAZILIAN EXPORTS (in £1,000 sterling) Yearly average D° 2nd period Estimate for 1st. 5-year period (1933-1937) 1938 United States 29.847 14.821 11.912 Great Britain 4.223 3.702 3.314 France 6.676 2.800 2.341 Argentine 4.286 1.745 1.530 Percentual alterations In the 2nd. 5-year In the year 1938 period as compared as compared with with the 1st. lst. period the 2nd d° United States -50% -60% -19% Great Britain -12% -21% -10% France -58% -64% -16% Argentine -59% -64% -12% Brazilian Imports United States 15.382 6.875 8.545 Great Britain 11.152 4.307 3.581 France 3.098 1.027 1.073 Argentine 6.584 4.174 4.710 Percentual alterations United States -55% -445 -24% Great Britain -61% -67% -16% France -66% -65% - 4% Argentine -36% -28% -12% VIII - The suggestions received from British, French, or Swiss sources, for the relief of this situation, may Regraded Unclassified 78 OPIA. - 7 - may be summarized as follows: a) Consolidation of the Federal, State and muni- cipal debts, in a new issue, with a reduction both of the capital and the interest, and an extension of term; b) financial and economic cooperation of cre- ditors for the drafting and execution of a plan, similar to that adopted by Chile; c) gradual nationalization of the debt; d) purchase of bonds in foreign markets, with the available funds, until the favorable trade balances be suffi- cient to permit resumption of interest. IX - Nothing concerns more the Government and the people of Brazil, than the absolute impossibility in which the country hes found itself, through no fault of its own, of resuming the payment of its external debt; wherefore ve are both willing and anxious to consider any suggestion tending to remove such an impossibility, at the earliest possible time, and under the most l'avorable conditions for our creditors. Regraded Unclassified 179 OPIA. A credit of 20 million dollars to the Carteira Cambial of the Bank of Brazil (Exchange Department of the Bank of Brazil) in order to release the exchange for the current trade, is sug- gested in the following terms: DECREE Art. 1 - Liberty for exchange operations in connection with normal trade shall be reestablished in the terms of this Decree and to take effect on the date of its publication. Art. 2 - Export drafts shall be sold in the open market and shall be applied exclusively to payments of imports. Paragraph - The Exchange Control Department will supply export permits only upon presentation of proof by the exporter to show that the exchange has been sold in accordance with the terms of this Decree. Art. 3 - The Banks purchasing export drafts will be obli- gated to sell to the Bank of Brazil on a sight draft on London or New York in accordance with the rate established daily by the Bank of Brazil, 10% of the amount of each bill of exchange purchased. Should the exchange draft be issued in other currency the conversion to pounds sterling or dollars shall be made on a basis of ita parity in London or New York on the day of pur- chase. Art. 4 - The purchase of exchange for the payment of 12- portations shall be made in the same manner as that of sales for exportation in the open market and with the previous authorization of the Exchange Control Department. Art. 5 - The exchange for the payments of collections overdue up to the date of this Decree, the equivalent of which in Brazilian currency has been deposited in the form of in- Regraded Unclassified 180 OPIA. - 2 - instructions in effect cannot be purchased in the open market. The Banco do Brasil will furnish the necessary coverages for this purpose through the official exchange rate in effect on the date of the publication of this Decree or that of the open market as may be found more convenient for the purchaser, Art. 6 - Transfers other than those issuing from current export and import trade may be made only through the Banco do Brasil. Art. 7 - Foreign tourists shall sell openly to the Banks, Exchange Houses or Banking Firms the amounts of their letters of oredit, travellers' checks or foreign exchange and may re- exchange the national currency should they so desire. The funds made available in this manner to the Banks, Exchange Houses or Benking Firms must be applied by them exclusively in the sale of drafts, letters of credit, payment orders or foreign currency, to persons duly authorized to purchase same through the Bank Control for purposes of travel or living expenses B - broad. Paragraph - Such operations must be entered separately and reported daily to the Bank Control (Fiscalização Bancária). Art. 8 - Exchange operations in compensated currencies shall be handled exclusively by the Banco do Brasil which shall alter its quotation in accordance with the fluctuations of our- rencies having free course in the international open market, Art. 9 - The Bank of Brazil may not maintain 8 "bought" exchange position on compensated currencies and may purchase them only for coverage of sales made previously or at the DATE time. Art. 10.- With the exception of the Banco do Brasil, Banks shall not maintain a "bought" position above 5000 pounds ster- Regraded Unclassified .81 OPIA. - 3 - sterling or its equivalent in other currencies. Art. 11 - The Banco do Brasil will perform all exchange operations pertaining to private capital, swaps, reports and others, at the rates prevailing in the open market. The Bank shall take care of the service of private capital within the limits of its available funds as practicable. Art. 12 - All governmental departments and public services, federal, state or municipal, must handle all their operations and transactions through the Banco do Brasil. Art. 13 - The Banks, Exchange Houses or Banking Firms which violate the provisions of this Decree, applying for pur- poses other than those herein prescribed the funds available, shall have their banking licenses cancelled and may no longer operate on exchange transactions. Art. 14 - All provisions to the contrary are hereby revoked. Regraded Unclassified -02 OPLA. THE ECONOMIC EQUIPMENT OF BRAZIL I - Brazil is a. new country in the economic sense of the word, and it is therefore a debtor country. Its exports con- sist chiefly of raw materials and foodstuffs, and this fact compels it to compete in world markets with the produce of colonial regions. II - The economic development of Brazil had been proceeding, up to the time of the crisis of 1929, in the same manner as that of all new countries, namely, through the cooperation of foreign capital secured by loans, both public and private. In accord- ance with the logic of the system, funds obtained in this nner should contribute toward the expansion of the economic equipment of such countries, resulting in a gradual increment in their exportable production, until a situation were reached in which the increasing balances should permit them to take care of the annual service of their respective foreign debts. Brazil had not yet attained this stage when the system under which its economic evolution was being processed was sb- ruptly interrupted by the cessation of international loans, The prices of raw materials, by reason of the crisis, underwent a deep depreciation, and the economic equipment of the country became greatly diminished, with a constant corresponding reduc- tion in its trade balances. The present situation constitutes a vicious circle: the heavy reduction in the gold value of exports does not permit purchase abroad of materials necessary for renewal and expension of the economic squipment, while, on the other hand, the inadequacy of the present economic equipment prevents the increase of the exportable production through in- dustrialization of certain products in respect to which Brazil Regraded Unclassified OPIA 183 - 2 - Brazil offers immense potentialities. III - The following items will convey an idea of the de- ficiencies in the present economic equipment of Brazil: a) The railways in operation at present in the country,- about 33,000 kilometers (20,600 miles) - require yearly for track maintenance from 150 to 220 thousand tons of rails, but these necessary renewals have not been made in recent years, to the enormous detriment of the trans- portation industry. b) Rolling stock, comprising at present 5,000 locomotives and 70,000 passenger and freight cars, must be renewed at the yearly rate of 180 locomotives and 3,500 cars, which is impossible under present circumstances. c) Briefly, it would not be an exaggeration to estimate requirements for yearly renewals at 200,000 tons of rails, 200 locomotives and 4,000 cars. In order to carry out its railway program, the Brazilian government would have to build an average of 10,000 kilometers yearly, and for such new construction it would need one million tons of rails, bridge materials, etc., besides 50 locomotives and 1,000 cars to serve these extensions. This in respect to railways alone, without consideration of the necessities of national defense as well as re- quirements in other departments, such as civil aeronau- tics, ports and shipping, drought prevention, radio and telegraphic communications, etc. IV - It is urgent therefore that Brazil attack the over- shadowing problem of providing the country with an economic equipment equal to the requirements of production and consump- tion of 8 population of 45 million. Brazil is today in an economic situation comparable to that of Russia at the end of Regraded Unclassified 184 OPIA. - 3 - of the World Mr: an economy based on production and export of raw materials and foodstuffs, compelled through loan oblign- tions to pay abroad yearly sume fixed on a gold standard, and yet unable to do BO owing to insufficient trade balances. The Russian government understood at once the necessity of equipping the country economically. Approaching Germany at Rapallo in 1922, Russia initiated, through the Pistakoff agreements, a policy of intense cooperation with the former, by means of which it WES made possible to acquire in exchange for raw na- teriale the products indispensable to the execution of the Russian plans for economic restoration. In the same manner, without the cooperation of a highly industrialized country possessing advanced technological qualifications, Brazil will be unable to carry out with the necessary speed its economic reconstruction, an essential condition for the elevation of the social level of its people. Such cooperation, which would consist of facilities for procurement of the necessary economic equipment in return for raw materials, - the only form of pay- ment within its power, - has been offered to Brazil on sundry occasions by the totalitarian countries, Germany, Italy and Japan, which are under pressing need for these materials. Mo- tives of a political nature, and fear of the influence which those countries might exercise over the economy of Brazil, led the government to decline these offers. V - - will the United States be disposed to extend its coop- eration in order to enable Brazil to overcome the deficiencies in its equipment? The complementary position which characterizes the economy of the two countries lends to such a cooperation a multiplicity of aspects and presents enormous latent possibilities. Not only could the industries of America procure in Brazil many rew Regraded Unclassified COPIA. 105 - raw materials which they need, and which are not produced or do not exist in sufficient quantities in the United States, - rubber, iron, manganese and other orea, vegetable oils, fibers, etc., - but the economic progress which Brazil would reap from this cooperation would result in the broadening of the Brazil- ian market for American manufactures, thus creating a close economic interdependence, the immense political scope of which cannot be gainsaid, between the two countries having the larg- est population on the Continent. VI - The cooperation in question could consist of the granting of long term credits intended partly for the immediate purchase in the American market of transportation materials and partly for the installation of an iron and steel industry on 8. large scale, for which conditions are favorable in Brazil and without which the country cannot accelerate the rhythm of its economic progress. VII - In accordance with studies which have been made, the installation of iron and steel mills in Brezil must be con- jugated with the export of 8. certain quantity of iron ore, with the purpose not only of ensuring & supply of coal at low prices, but also to finance the installation of smelters and the crea- tion of an ore transportation system. With regard to transpor- tation, two equally possible solutions are presented, namely, either through the Rio Doce Valley to the port of Santa Cruz, which would require the construction of a. reilway, or else through the Central do Brazil Railway, involving the adaptation of this line to the economical transportation of ore. The payment of the credits in question could be guaranteed by the income from the transportation of ore, with the cooperation of American metallurgical centers, which could only profit through the importation of high grade Brazilian ore. Regraded Unclassified 106 OPIA - 5 - ore. VIII - If Brazil finds it cannot count upon the cooperation of the United States for the realization of this enterprise, 80 vital to its development, it will be compelled to accept association with another industrial country. The expansion of our trade with Germany during recent years reveals the necessity in which Brazil is placed of having to equip itself economically and to pay for its equipment with the only coin it possesses - raw materiels. II - In addition to this association in 8. plan for the large scale development of the economic equipment of Brazil through the creation of basic industries, a more direct parti- cipation by American capital and technicians in the work of mobilization of Brazilian riches imposes itself. Vast possibilities are open in this direction. The reason for the decline in the trade between the two countries must be sought for also in the scant participation by these elements in the internal development of Brezil, in accordance with the maxim, "Trade follows investment". While the Germans, Italians and Japanese partake with growing activity in the organization of Brazilian production, both agricultural and industrial, and in financing exportation, employing many technical men and main- taining commercial banks, in addition to hundreds of thousands of their nationals and descendants of same who are permanently established in Brazil, the United States have invested little in productive activities there; American technicians are few, and there 1a no commercial bank, for the only American banking establishment in Brazil limits its operations to deposits and exchange. Such indifference and apathy on the part of American interests in Brazil is in ever-growing contrast with the dynamic creative attitude of the nationals of the aforementioned coun- Regraded Unclassified B7 COPIA. 6 - countries. Às examples of forms of possible participation in the in- ternal development of Brazil the following may be mentioned: 1) Investment in the production and export of articles needed by the American market: - rubber, vegetable oils, fibers, iron, manganese, nickel and other ores; 2) Establishment of commercial banks for the financing of production. 3) Participation by a group of American banks, under the direction of the Federal Reserve Bank, in the financing of trade with Brazil, through the concession of credits. &) Colonization of certain regions in São Paulo and Rio Grande do Sul by American citizens who may wish to pur- chase and cultivate lands in these regions. Regraded Unclassified