811.20 Defense (M) Brazil/221
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received February 3.]
Sir: I have the honor to report that the Embassy has recently reviewed the operations of the first six months of the United States-Brazil Strategic Materials Agreement85 with the view to formulating suggestions which might be of value in the adoption of a procurement program in Brazil to meet war needs in the United States.
Probably the most important accomplishment of the agreement, prior to the entrance of the United States into the war, was the [Page 675] shutting-off of Axis sources of supply for strategic materials. The actual procurement policies followed by the purchasing agencies have been, with the exception of two or three commodities, very limited in scope. No purpose would be served by reviewing the cases of lost opportunities either in the actual procurement of needed materials or in the development of future sources of supply. It should be mentioned, however, that whatever validity there may have been for an over-cautious buying policy on the part of the purchasing agencies, it is apparent that a basic change in procurement policies and methods of administration is essential to the war effort.
The changed situation would appear to dictate an expansion in the list of commodities which should be made subject to bilateral agreement between the United States and Brazil and a reconsideration of the quantitative undertakings for certain of the commodities now included in the Agreement.
The Embassy assumes that the objectives of the authorities in the United States are to maximize the production and exportation to the United States and allied nations of Brazilian strategic materials, and to adapt this program in such a manner as to maintain amicable relations with Brazil and to minimize points of friction. The attainment of the first objective is in a large measure dependent upon the second.
Taking into consideration the importance of the time element, it would appear that the most effective type of program requires a revision of procurement policies on the part of the government purchasing agencies, a more effective organization within the Brazilian Government and an administrative organization in Brazil of American governmental representatives which would make possible a maximum of correlation and integration of effort. Procurement policies, to be most effective, should get away from the concepts of world market prices which are in many cases greatly influenced by conditions in countries having efficient and well-established production. Each commodity should be studied separately and consideration given to the adoption of any device which would expand output, subject, of course, to the qualification that a larger supply of a given Brazilian commodity is of value to the war program. Such devices might include increased prices, bounties for all production above a normal level, long-term contracts to make projects more attractive to Brazilian capital, advances for equipment and other working capital requirements, and possibly outright investment.
A number of Brazilian Government agencies are concerned in one way or another with the production and distribution of Brazilian materials and the Embassy has in the past experienced many delays [Page 676] in attempting to obtain action expeditiously on matters which are intimately connected with the Strategic Materials Agreement. The Embassy is hopeful that in accordance with Resolution II of the Third Meeting of the Ministers of Foreign Affairs of the American Republics,86 the Brazilian Government will adopt practical measures which will permit more rapid action. The Embassy has already informally approached the Brazilian Government with a proposal to form a joint defense materials committee to meet periodically and to be composed of the Chief of the Economic Section of the Ministry of Foreign Affairs, the Director of Exchange of the Bank of Brazil and the Commercial Attaché of the Embassy.
The growing recognition of the need to correlate and integrate the work of representatives from different government agencies in Washington who are currently in Brazil or who will arrive in the future, resulted in a meeting held at the Embassy on January 26, 1942, and attended by Wayne C. Taylor, Under-Secretary of Commerce, Emilio G. Collado and Howard J. Trueblood of the Department of State, Carl Spaeth of the Board of Economic Warfare, Warren Lee Pierson, President of the Export-Import Bank and Mr. Donnelly and Mr. White of the Embassy.87 It was pointed out at this meeting that with the rights which the United States had acquired to monopolistic purchases of Brazilian strategic materials, there had been created a corresponding obligation on the part of the Government of the United States to so administer its procurement program as to minimize points of friction and to eliminate factors which tended to create dislocations in Brazil’s national economy. It was mentioned that decisions made in Washington from day to day and communicated to New York to be transmitted to a purchasing agency in Brazil to buy or to cease buying, frequently resulted in unnecessary disturbances in Brazil. It was further pointed out that there were many factors involved in a procurement program for a given commodity; that these included not only those of direct purchases, but also of rail transportation, storage, water transportation, correlation with British purchases, and a multitude of intergovernmental problems. It was mentioned that frequent and unanticipated changes in buying policy made in Washington and communicated directly to the purchasing agency in Brazil had had unfavorable political repercussions which could have been avoided had the matter been first referred to the Embassy.
[Page 677]At the same time, it was recognized that a number of government agencies in Washington were sending representatives to Brazil to make mining, agricultural or transport studies, and that their activities should be made subject to supervision and directed into channels where they could give the most direct assistance to the expansion of output of needed materials.
It was likewise agreed that there should be organized within the Embassy a defense materials unit to correlate and integrate all of these activities and to provide a more adequate statistical and research service.
Finally, great importance was placed on the formation of a company subsidiary to the Federal Loan Agency (as are the commodity companies such as the Metals Reserve Company), organized on a geographical basis in Brazil, to handle all procurement activities for the Federal Loan Agency. Such a company should be given, within the framework of broad policies formulated in Washington, necessary authority to make decisions locally and to act promptly and effectively in taking advantage of every opportunity to increase the flow of needed materials to the United States. It is believed that such an organization, with adequate powers, would be able to assume the initiative in developing worthwhile projects and that many of the delays currently being experienced through the necessity of referring details to the United States could be avoided.
There is enclosed a chart88 of the proposed organizational set-up for the defense materials program in Brazil, as agreed upon at the meeting under reference. In regard to the question of communications, it was thought that all matters of general policy, as well as matters which involve any change in buying policy should be channelized through the Embassy. There is, of course, no objection to direct correspondence on detailed matters, which in no way relate to a change in policy or to intergovernmental matters, between the Federal Loan Agency and its subsidiaries and the procurement organization in Brazil.
I would appreciate the comments of the Department and other interested agencies in regard to the organizational plan under reference.
Respectfully yours,
Counselor of Embassy
- See telegrams Nos. 460, May 13, 3 p.m., and 466, May 14. 8 p.m., from the Ambassador in Brazil, ibid., section under Brazil entitled “Arrangements to procure for the United States strategic materials from Brazil.”↩
- For correspondence concerning this meeting at Rio de Janeiro, January 15–28, 1942, see pp. 6 ff.; for text of the Final Act of the Meeting, see Department of State Bulletin, February 7, 1942, pp. 117–141.↩
- Walter J. Donnelly, Commercial Attaché and Ivan B. White, Third Secretary of Embassy and Vice Consul.↩
- Not printed.↩