132. Telegram 2584 From the Embassy in Brazil to the Department of State1
2584. Pass Treasury for Suchman, Parsky and Bushnell. Subject: Trade Problems.
1. Summary: Francisco Dornelles of Finance Ministry has returned from his recent trip to Washington in a very optimistic mood and expects resolution of shoe problem would put Brazil in a favorable position against other shoe exporters to the U.S. Embassy is concerned that this optimism may be premature. If shoe decision should be different from present Brazilian expectations, we must expect a very strong negative reaction, thus undoing a good deal of the benefit of Secretary Kissinger’s visit.
End summary.
[Page 369]2. Francisco Dornelles of the Finance Ministry called in FinAtt late afternoon of March 24 to review the results of his most recent trip to Washington. Dornelles made two main points:
A. He was hopeful that the President’s decision on the escape clause action on shoes would come out in such a way as to place Brazil in the same competitive position in the U.S. market as other exporting countries. By this he meant two things: (1) That the President’s determination would provide for an across-the-board tariff increase and (2) that Treasury would exercise its waiver authority under the Trade Act and suspend countervailing duties as a result of the implementation of such a Presidential decision.
B. That the Presidential determination not close off the possibilities of further Brazilian penetration of the U.S. shoe market. In other words, Brazil would have difficulty with the tariff-quota mechanism.
3. Dornelles characterized the meetings with Treasury and others in Washington as extremely friendly and described his trip as an unqualified success, which proved wrong his earlier hesitancy about participating in the sub-group meetings. He was particularly happy with what he said was Treasury’s agreement to exercise its waiver authority under the Trade Act, after the President’s determination was put into force, and suspend the current countervailing duties without rpt without the Brazilian side’s having to change their export incentive system. He claimed that he had received firm assurance on this from Assistant Secretaries Macdonald and Parsky. Dornelles has also returned with the clear impression that the shoe decision will be an across-the-board tariff increase, which, with the suspension of the countervailing duties, would put Brazil in a very good competitive position vis-à-vis other exporters. He said he had obtained this impression after talking with Ambassador Yeutter and Treasury officials.
4. Dornelles made two other specific requests: (A) that we give him advance notice on the ITC decision so that he can fly to Washington and settle any outstanding problems that may require solution to complete the scenario outlined above and (B) that all arrangements for the forthcoming visit of Secretary Simon (including the agenda) be made through us and not through the Brazilian Embassy Washington and the Foreign Ministry. He said Simonsen wishes to keep the visit within Treasury/Ministry of Finance channel.
5. In response to the question as to why he had not pursued Simonsen’s idea put to Secretary Kissinger for some kind of a broad interim agreement on the Brazilian system of subsidies, Dornelles replied that the Minister had not really thought through his scheme and any move in that direction would require at least one year to work out and implement. When FinAtt mentioned the problem of third/country actions such as the one being contemplated on soybean oil by [Page 370] the American soybean producers, he said that these problems could be handled on a case-by-case basis. In fact, he claimed that after talking to Valentini of the Ministry of Agriculture he was certain that the offending subsidy will be withheld as promised by Valentini in Washington. When it was mentioned to him that Washington was seeking some very definitive assurances in this regard in order to stave off a trade complaint from the American soybean producers, Dornelles offered his services in trying to persuade the Ministry of Agriculture to withdraw the subsidies should our own efforts with the Ministry of Agriculture not prove fruitful.
6. Comment: Dornelles has apparently returned with very fixed ideas about what we are prepared to do to solve the shoe problem. While the Embassy would welcome the kind of outcome Dornelles is expecting, we are not aware that any decision is imminent; thus, his optimism would at best seem premature. We have received other indications that the Brazilians have concluded from the Washington meetings that Secretary Kissinger’s trip has very definitely improved the political climate on trade issues from their standpoint and that progress can be made without the Brazilian side having to give much, at least for the time being. We are not sure whether this optimism may not have raised unrealistic expectations which, if not realized, would in the long run do more harm than good to our relations with Brazil. Given Dornelles’ own interpretation of what was said on shoes, there is the very real danger that, unless the final decision comes out the way he expects, the benefits from Secretary Kissinger’s visit and the expected good effects of Secretary Simon’s visit will be greatly diminished.
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Summary: Ambassador Crimmins reported that if the U.S. Government increased tariffs on imports of Brazilian shoes, it would undo a significant portion of the goodwill generated by Secretary Kissinger’s recent visit and Secretary Simon’s prospective visit.
Source: National Archives, RG 59, Central Foreign Policy File, D760113–0692. Confidential; Immediate; Exdis.
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