The Chargé in Canada (Boal) to the Secretary of State

No. 1300

Sir: I have the honor to refer to my despatch No. 1080, of October 20, 1932,1 regarding the Ottawa agreements,2 as well as to previous reports upon that subject, and to my despatch No. 1243 of February 21, 1933,1 reporting a debate in the Canadian House of Commons regarding the possibility of reciprocal trade arrangements with the United States.

In order that the Department may have at hand material from this Legation to supplement its study of the possibility of some form of trade and other agreements with Canada I recently asked Mr. Meekins, the Commercial Attaché of the Legation, Mr. Harrington, American Consul here, and Mr. Bonbright, Third Secretary, to work together upon the preparation of data for this purpose. This has been prepared in the following form:3

  • Memorandum dealing with general provisions and with Canadian exports to the United States.
  • Memorandum dealing with United States exports to Canada.
  • Tentative outline of agreement.

I wish to make it clear that in the absence of more definite information as to the method under which our Government might be prepared to proceed, it has been rather difficult to base these studies upon the probability of the adoption of any particular method. Current press reports indicate that consideration is being given to the possibility of legislation which would enable the President to conclude Executive agreements possibly embodying the method used in the Argol agreements.4 [Page 38] From the Canadian point of view this might be open to the objection that such agreements might be terminated by unilateral action at any time. Possibly a means may be devised to obtain authority for Executive agreements which would make it possible for the President to conclude such agreements with assurance that they would endure for a fixed period. I note, for instance, that in Executive Agreements, Series No. 37, which relates to the Chinese courts in the international settlement at Shanghai, Article X states that

“The present agreement and the attached notes shall enter into effect on April 1st, 1930, and shall continue in force for a period of three years from that date, provided that they may be extended for an additional period upon mutual consent of the parties thereto.”

As an annex to this despatch will be found an outline embodying a series of agreements.5 In submitting this outline I wish to make it clear that it is not intended to represent anything but a part of the study in an elementary form. It is my thought that it would be more convenient for the Department to deal with a specific form and text, even though this may not correspond to the Department’s ultimate policies and general plan of action. This outline is based upon two assumptions: one, that it is now timely to conclude a trade agreement with Canada and that it is therefore an opportune time to complete agreements with Canada on other subjects; two, that fixed tariff rates, intended to remain unchanged for a considerable period of time, cannot be put into an agreement because of A, the uncertainties surrounding the future of international trade and the consequent difficulty of determining the probable course of Canadian-American trade over any period greater than one year, and B, the acute problems presented by the overproduction of natural commodities in the United States which may, however, be relieved rapidly as the result of national and international action. The attached outline contains provisions for the employment of the International Joint Commission as the agency through which these difficulties can be met. If this method is incompatible with the policies of procedure formulated by the Department in conjunction with the other interested Departments that part of the enclosure can be disregarded; the remainder, however, will be found to contain data [Page 39] which should prove of value in negotiating any type of agreement with this country.

I have also endeavored to give due weight to the very strong and general feeling in Canada that some guarantee must be given Canadian industries and natural producers that the benefits of any agreement arrived at will not suddenly be removed from them, leaving on their hands a series of enterprises developed for the American market with no market to which to send their produce.

I have gone on the assumption that present United States tariff rates can in many instances be considered to be higher than desirable. It is obvious, however, that during the past year American tariffs with Canada have been lowered through the operation of the exchange rate between the currencies of the two countries. Part II, Article 3, by providing that the trade agreement between the two countries should be based upon the assessment of duty at par of exchange, would effectively lower duties now paid on American exports to Canada, since, as explained in the Commercial Attache’s memorandum, these are now calculated much higher than the regular rates because they are figured on the basis of the present disparity in the currencies.

Another feature of the enclosed outline is the provi[sion] in Article V, Part II, dealing with the elimination of the troublesome Canadian valuation system, which is discussed at some length in Mr. Meekins’ memorandum. This system of valuation has been the cause of most of our trade difficulties in Canada and has been a far greater bar to normal trade than tariff rates in themselves.

It may appear surprising to the Department that the enclosed outline should stress the purposes of the proposed agreement and should leave so much to the future in the form of adjustment in rates during the life of the agreement. I am convinced, however, by such experience as I have had here with the Canadian point of view and the trade difficulties which have arisen that the main objective to be reached is to obtain a change in the Canadian mentality with regard to the degree of safety involved in trading extensively with us. They must be assured that we are not attempting to absorb them economically or to dominate them financially and that we will be as conscientious in seeking to make this agreement operate to their national advantage as to our own. I believe that a satisfactory agreement should undertake to attain these objectives and should make provision for flexible tariff operation which can be simply and expeditiously adjusted from time to time when the result of the agreement’s operation is an obvious deviation from the attainment of these objectives. I am inclined to think that an agreement which does not contain the quality of flexibility and easy adjustment is [Page 40] likely to fail in its purpose through changes of circumstance or to fail in negotiation because of objections in one or the other country.

It may be noted that the maxima for rates are indicated in schedules called “Schedules A” and “B”, which are attached to the outline and are intended to be the only part of the agreement dealing with specific rates. These schedules would permit not only of the fixing of duties between these maxima and minima rates, but also of adjustment on a period basis in order that the graduation from present high tariffs to lower ranges might be arrived at progressively instead of abruptly. This would give time for adjustment to certain industries which might otherwise be seriously affected. It would seem advisable to consult the affected producers in connection with the fixing of the rates in these schedules.

The proposal contained in Part II, Article II, of the outline to entrust the solution of current operating problems and such adjustments as may be necessary during the life of the proposed agreement to the International Joint Commission may cause some surprise. However, the language in Article IX of the Treaty of January 11, 1909, relating to boundary waters and questions arising along the boundary between Canada and the United States6 would appear to be broad enough to cover “any other questions or matters of difference arising between them (United States and Canada) involving the rights, obligations or interests of either in relation to the other or to the inhabitants of the other along the common frontier”. Since, as is shown by experience with the Ottawa agreements, the operation of a substantial trade agreement between the United States and Canada would be followed by the necessity for a continuous study and adjustment, it would seem desirable that some medium for such adjustment should be provided which would be somewhat removed from the immediate pressure of politics in both countries. As its membership is evenly divided between the two countries the Joint Commission cannot make a joint recommendation to both governments on the basis of a majority finding unless at least one American member sides with all the Canadians or vice versa. Furthermore, in the language of the treaty, the Commission’s reports shall not be regarded as “decisions of the questions or matter so submitted either on the facts or the law and shall in no way have the character of an arbitral award”. The Commission’s procedure would not be along the lines of those of a legal body such as a court of law, but rather along the lines of a policy body. It could be equipped with technical assistants, could obtain the assistance of Commercial Attaches or other members of the Legations of one or both countries when necessary, could refer certain technical questions for study to the tariff boards of [Page 41] either country, could confer with the representatives of industries and foster agreements between the major industries of the two countries, as was done by the British and Canadian governments just before the Ottawa Conference took place. It could be authorized to avail itself of the services of outstanding authorities on economic questions either permanently or during the discussion of particular subjects. It would act really as a steering committee for the treaty during its life.

It may be objected that this work would interfere with the regular work of the Joint Commission. I may say that this is not at the moment very heavy, and that if the Joint Commission were constituted of men competent to deal with the intricate economic questions involved in Canadian-American trade relations they could follow their present practice of employing temporary assistants to work on other types of questions which are currently referred to them by the Governments.

This thought of using the Joint Commission, however, is advanced tentatively. It may be that it would be found preferable to create some other group to perform the same function, or that a method of achieving the same results through the usual diplomatic channels can be evolved. I do feel, however, that progress can be made more smoothly and rapidly by having a constant contact between persons having some limited authority of action assisted by experts working out the details of the operation of the agreement rather than by having each detail taken up between Governments as it arises and having to appoint special persons to discuss these details in each case.

It may further be objected that while an International Joint Commission exists between the United States and Canada, such an organization does not exist to deal with the relations of the United States with other countries, and that to create bilateral commissions with all the countries with which we have extensive trade relations would be both cumbersome and expensive. I believe that this objection is important, but I submit that our relations with Canada are and should continue to be exceptional. If international trade relations drift toward regional understanding, we should in fact be in the position of having a sort of regional understanding with the nations of this hemisphere, more particularly Canada. The further we advance along this path before the regional feeling crystallizes, the better we will be situated with regard to the defence of our interests. If, on the other hand, international trade relations are developed along the lines of general and progressive reduction of tariffs with a view to increasing the volume of international trade, the sooner we establish, in so far as is possible, an identity of interests with the nations of this hemisphere, and the closer we are associated with them the more successfully we can advance our views of what these reductions should be, and the more effectively can we [Page 42] use our tariffs for bargaining purposes. It is really a premise on which this outline of an agreement is based that our trade relations with Canada, often described as our “best customer”, economically our most powerful neighbor, indissolubly an immediate part of the economic system of this hemisphere, are and must be considered on a different footing from our trade relations with distant nations or with all nations, and that therefore our concessions to Canada in trade matters and such a system of trade relationships as may be evolved between Canada and the United States should not be taken as a yardstick to measure the concessions and treatment which other nations should expect from us or from Canada.

The idea of embodying schedules which can be added to from time to time without the re-negotiation of the entire agreement is taken from the method of the Ottawa agreements. The idea which will be found in Part II Article 2, paragraph 8, of this outline of providing for modification of the agreement in case any particular industries are shown to be undergoing serious damage because of its operation is based on the Canada-New Zealand agreement.7 In Part II, Article 3, of the outline will be found a provision to safeguard our agricultural producers against dumping in the event that the processing taxes embodied in legislation now pending before Congress are applied to products included in the proposed agreement. The provision in Part IV (Customs) of the outline which deals with the privilege for American vessels of loading and unloading cargoes at non-customs ports of entry would be favorable to shipping interests in the State of Washington, and might tend to offset the effect of a reduction in the duty on fish and the import tax on lumber.

It is probable that if trade relations are to be regulated by an Executive agreement it will not be advisable to include as an integral part thereof the portions of the outline covering such matters as treatment of nationals, consular rights, et cetera. It is my feeling, however, that if it is practical to do so it would be desirable to include fisheries, and possibly navigation, in the agreement to be concluded. In the matter of fisheries particularly it is obvious that the question of Canadian treatment of American fishing vessels is closely related in the Canadian mind to the American tariff on Canadian fish; therefore an agreement in separate parts, but which would be concluded as a whole, would deal effectively with this obvious feeling. If the matter is dealt with in two entirely separate agreements, particularly if one of these were to be referred to the Senate and the other not, Canada would probably wish to defer ratification of both agreements until both had been perfected [Page 43] in the United States, and this might operate to delay or jeopardize either the trade agreement or the fisheries agreement, or both. If it should be determined that the agreements with Canada should all be made in treaty form I can see no practical bar at the moment to including all of these subjects in the same treaty. The outline has been drafted in the treaty form, although as I have above explained, this has merely been done for the sake of convenience and does not indicate on the part of the Legation any conviction that the treaty form is preferable.

I have not indicated in this outline any possible agreement on immigration matters as I do not know whether such an agreement would be feasible to our Government. It is clear to me from some occasional remarks made to me by the Prime Minister that he is not satisfied with the present situation between the two countries with regard to immigration, and it is therefore quite possible that if any negotiations were undertaken he would request that some provision covering immigration be included in the interests of certain classes of Canadians desirous of residing in the United States. I have the honor to suggest that the Department may wish to obtain some report from the appropriate authorities of the current situation on immigration matters between the United States and Canada with a view to determining whether any improvements could be effected on both sides of the line.

I have the honor to point out that this week the question of trade relations with the United States was raised again in the Canadian House of Commons in connection with the debate on the Budget. Opinion throughout Canada is crystallizing to press upon the Government for an agreement with the United States. It is politically timely and expedient for the Canadian Government to make such an agreement to still the criticism of the Liberal party that Canada’s future welfare has been sacrificed in the Ottawa agreements. I am inclined to believe that although it will be difficult to do so, it should be possible to obtain some changes in the Ottawa agreements in the interest of a substantial trade agreement with the United States.

I am also enclosing, as of interest on the subject of non-ferrous metals, copy of a memorandum received from Professor W. Y. Elliott of Harvard, and of a memorandum prepared by Mr. C. K. Leith.8 The establishment of a precise list of non-ferrous metals has not been attempted. The items listed in Schedules A and B, attached to the outline, have been selected merely as a basis for study. Obviously, there might be some additions to this list, some deletions and a good deal of further sub-division into categories. However, it has appeared obvious that this could not be done effectively without extensive consultation with [Page 44] representatives of various agricultural and other industries. As this can only be done in Washington, no attempt has been made to sub-divide the items in Schedules A and B extensively, or to insert any rates. I may mention that due consideration was given to the possibility of including petroleum and its products in Schedule B, but that it was felt that due to the particular character and development of this industry and the fact that American imports of petroleum suffer far more because of over-valuation than because of the rate of duty, it was preferable to leave out this item and to rely upon obtaining an improvement in the Canadian system of valuations as indicated in Article V of the outline.

The possible advantages of combining with the rate-fixing features of the outline and of Schedules A and B some form of quota restriction has not been overlooked. I feel however that, at the outset of this study at least, it may not be desirable to attempt to formulate restrictive provisions of this character. If it should develop, after consultation with representatives of the interested industries, that substantial reductions of rate could not be achieved without some quota protection for domestic industries, there would still be opportunity for the framing of some quota provision. Furthermore, it may be noted that Article II, section 10 of the outline, provides for a means of resorting to new methods by mutual agreement.

Respectfully yours,

Pierre de L. Boal
  1. Not printed.
  2. The trade agreements concluded during the Imperial Economic Conference at Ottawa in 1932. For complete texts of the agreements and attached schedules, published by the Canadian Government as annex V to the report of the Conference, see Imperial Economic Conference 1932: Report of the Conference, Supplementary Volume (Ottawa, 1932); the texts are also printed in British and Foreign State Papers, vol. cxxxv, p. 161.
  3. Not printed.
  4. The following papers enclosed with this despatch are not printed.
  5. The “argol agreements” were negotiated under section 3 of the Act of 1897. In conformity with the provisions of the first part of section 3, two series of agreements, known from the first article specified on the list as “argol agreements”, were concluded. During President Theodore Roosevelt’s administration, the United States negotiated a second series of “argol agreements”. See United States Tariff Commission, Reciprocity and Commercial Treaties (Washington, Government Printing Office, 1919), pp. 205, 209 ff. and 435 ff. See also U. S. Tariff Commission, Dictionary of Tariff Information (Washington, Government Printing Office, 1924), p. 619.
  6. Not printed.
  7. Foreign Relations, 1910, p. 532.
  8. Trade agreement between Canada and New Zealand, signed at Ottawa and Wellington, April 23, 1932, Canada, Treaty Series No. 2, 1932.
  9. Neither printed.