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For Your Background Information:

A-In the past the United States has provided virtually all of the Canadian market for cotton, supplying during the 5 years ending 1939–40 an average of approximately 300,000 bales a year. Since the fall of 1940 the spread between prices of cotton in the United States and in Brazil has been such as to encourage large shipments of Brazilian cotton into Canada with the result that in the last marketing year, ending July 31, the United States shipped only 194,000 bales of cotton to Canada, whereas Brazil appears to have shipped approximately 450,000 bales to Canada. Thus far in the current marketing year, beginning August 1, there have been virtually no sales of United States cotton to Canada, whereas substantial sales of Brazilian cotton to Canada have been reported.

B—At the present time the price of American cotton laid down in Canada is approximately 19.25 cents a pound, whereas it is understood that Brazilian cotton is being laid down in Montreal for 12.5 cents. While it is believed that Canadian spinners are willing to pay a slight premium for American cotton over Brazilian, it is evident that they are unwilling to pay such a difference as indicated by the above figures. The price of United States cotton laid down in Montreal a year ago was 10.75 cents.

C—The Department of Agriculture proposes to put into effect two programs. It is proposed first of all to announce that cotton owned by the Commodity Credit Corporation as a result of loans on the 1937 crop will be offered for sale for export at its cost to the United States Government. This represents approximately 121/2 cents a pound. It is proposed secondly to announce from time to time rates of payment on cotton moving for export calculated to be sufficient to bring United States cotton laid down in Canada on a par with Brazilian.

D—As an indication of the seriousness with which the loss of the Canadian market for American cotton is regarded in this country reference may be made to a Bill, S-1831,18 now pending on the Senate calendar which prohibits the use of Federal funds for the acquisition of any raw cotton of foreign origin or of any articles containing such cotton and would make void any existing contract for the acquisition thereof with such funds. Its practical effect would be to prevent the use of defense funds for the purchase of any article manufactured in whole or in part from Brazilian cotton.

E—In view of the increasing pressure on ships for essential Brazilian-United States services, it is becoming increasingly difficult to explain the use of space for carrying cotton to Canada from such a far-distant source.

HULL

18 Congressional Record, vol. 87, pt. 6, p. 6963, and ibid., pt. 7, p. 7115.

561.321D1 Advisory Committee/64

The Secretary of State to the Minister in Canada (Moffat)

No. 629

WASHINGTON, September 16, 1941. The Secretary of State transmits, for the information of the Legation, a copy of a telegram which is being sent to the American Ambassador to Brazil 19 regarding the provision which is being made in the cotton program of the United States for the exportation of cotton to Canada.

The Legation is requested to communicate to the appropriate Canadian authorities the substance of the first four paragraphs of the telegram.

561.321D1 Advisory Committee/64 : Telegram

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

WASHINGTON, September 16, 1941–5 p. m. 808. Departments 804, September 15, 11 p. m. Department of Agriculture will release to press for afternoon papers of Wednesday, September 17, announcement of decision to make available for export cotton owned by Commodity Credit Corporation. See paragraph Cof telegram under reference.

HULL

561.321D1 Advisory Committee/64: Telegram

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

WASHINGTON, September 25, 1941—midnight. 856. Department's 804 September 15 and your 1314 September 19.20 Please advise appropriate Brazilian authorities that the Secretary of Agriculture has approved and will announce by not later than October 1 the export payment part of the program referred to in paragraph (C) of the telegram under reference.

Please ascertain when Brazilian representative, if his appointment is approved, might arrive in Washington to discuss the question of the sharing of the Canadian market during the current marketing season for American cotton.

HULL

19 Supra.
20 Latter not printed.

561.321D1 Advisory Committee/66: Telegram

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

RIO DE JANEIRO, September 26, 1941—noon.

[Received 1:02 p. m.] 1359. Department's 856, September 24 [25], midnight. The Ministry of Foreign Affairs has been informed. It has decided to send Dantas to Washington at the earliest possible date. He expects to arrive there not later than October 15 and earlier if plane reservations can be obtained. Presidential approval for his trip has not yet been obtained but is regarded as merely a formality.

The Brazilian authorities have evidenced concern with respect to the possible effects of the program. They may ask that, in view of their willingness to discuss division of the Canadian market, the part of the program referred to in Department's telegram No. 856 of September 24 be deferred pending discussions with Dantas in Washington. The Embassy assumes from the Department's telegram No. 804, September 15, 11 p. m., and the obvious possibility of hurried Brazilian sales to Canada if this part of the program becomes known to the trade, that such a request would be fruitless, and has so told the Brazilian authorities informally.

Dr. Dantas, who is now in Rio de Janeiro conferring with the Ministry of Foreign Affairs concerning the program, doubts whether it will have much immediate effect on Brazilian cotton sales to Canada as Canadian mills are understood to have heavy stocks of raw cotton and he believes no important sales of Brazilian cotton are currently being made to them although some appreciable quantities remain to be shipped from past sales.

The Brazilian authorities are exceedingly hopeful that as a result of Dantas' trip a fair arrangement with respect to the Canadian market and possibly with respect to other markets can be worked out. They have taken steps to prevent unfavorable press comment which might arise from the program. Inform Agriculture.

CAFFERY

561.321D1 Advisory Committee/70: Telegram

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

RIO DE JANEIRO, October 2, 1941–10 p. m.

[Received October 2–3:30 a. m.] 1416. Embassy's telegram No. 1359, September 26, noon. The Embassy has this afternoon received a note from the Ministry of Foreign Affairs dated September 29 stating that the Brazilian Government agrees in principle with the proposal of the United States Government submitted September 17 that the Brazilian Government send to Washington a representative to study jointly the bases of an agreement for the equitable distribution in the Canadian market of Brazilian and American cotton. The note states also that José Garibaldi Dantas has been selected to represent the Brazilian Government for the above purpose and that he will proceed to Washington by plane where he should arrive about the middle of October.

As anticipated in the Embassy's telegram No. 1359 of September 26 the Ministry of Foreign Affairs requests at the same time that until the agreement is reached the export subsidy program which it understood would be put into effect on October 1 be withheld. The Embassy believes that the Ministry of Foreign Affairs transmitted a similar request to the Brazilian Embassy in Washington on or about September 25 after the Embassy informed the Ministry that the export payment program had been approved and would be announced but not later than October 1st.

It is believed not unlikely that if the export payment program which the Embassy understands was put into effect on September 29 were suspended the Brazilian Government would take advantage of the occasion to raise its minimum export prices on cotton. (See the Embassy's telegram No. 601, June 6, 9 p. m.) 21

9

CAFFERY

561.321D1 Advisory Committee/70: Telegram

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

WASHINGTON, October 9, 1941–11 p. m. 928. Your 1416, October 2. With reference to the Brazilian request that the export subsidy be withheld, you may reply to the Foreign Ministry's note along the following lines:

1. At the time that the cotton export program was decided upon, the Canadians had already purchased enough cotton from Brazil to supply a large part of their cotton needs during the current marketing year for American cotton and, since it appeared that such purchases would continue and that the deferring of action pending the proposed discussions would result in still fewer market opportunities in Canada this year for American cotton, the Brazilian authorities were informed at the time discussions were proposed (Paragraph 4 of Department's 804, September 15) that it would be necessary to proceed at once with the program,

2. The subsidy part of the program, which the Brazilian authorities were informed (Department's 856, September 25) would be announced not later than October 1, was announced September 27, prior to your receipt of the request under reference. Although a member of the Brazilian Embassy informed an officer of the Department on the day of this announcement by the Department of Agriculture that it would be convenient if this Government avoided putting into effect the export subsidy which, his Government was informed, would go into effect on October 1, postponement was not considered feasible for the reasons indicated above.

u Not printed.

3. An additional reason for not now suspending the program would be that such suspension, resulting in uncertainty and confusion, would cause serious disturbance to our cotton export trade.

For your information. The Brazilian Ambassador has recently urged that, pending the arrival of Dantas, discussions regarding the supplying of the Canadian market be entered into with the Embassy and has called on officials of the Department of Agriculture requesting that they present to him our proposal in that regard. It was explained to him that no proposal could be formulated until all the facts were ascertained, including the quantity of Brazilian cotton sold to Canada since August 1. He indicated that he would attempt to obtain information regarding such sales, but it appears that there will be little opportunity for further discussion with the Brazilian Embassy in view of limited time before Dantas is scheduled to arrive.

HULL

561.321D1 Advisory Committee/64 : Telegram

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

WASHINGTON, October 23, 1941—7 p. m. 1000. In view of decrease in price of Brazilian cotton the subsidy on exports of United States cotton to Canada has been increased to 3 cents in accordance with the plan referred to in last sentence of Section C, our telegram no. 804 of September 15, 1941. Repeat to São Paulo.

HULL

561.321D1 Advisory Committee/67: Telegram The Secretary of State to the Ambassador in Brazil (Caffery)

WASHINGTON, October 29, 1941–10 p. m. 1045. Reference your telegrams no. 1564, October 23, no. 1512, October 16, and no. 1470, October 10.22 In view of Mr. Dantas' imminent departure for discussions on sharing the Canadian cotton market,23 there follows for your background and such use as you may consider appropriate a summary of the Department of Agriculture's attitude toward the cotton subsidy program.

22 None

printed. Mr. Dantas was scheduled to leave for Washington by air on November 3.

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