611.4231/1264
The Minister in Canada (Armour) to the Secretary of State
[Received October 8.]
Sir: I have the honor to inform the Department that in a talk this morning with Dr. O. D. Skelton, Under Secretary of State for External [Page 25] Affairs, Dr. Skelton expressed the extreme discouragement which he said they all felt with regard to the trend the negotiations looking toward a trade agreement had taken.
Dr. Skelton said that while of course they were continuing to examine the possibilities of reaching some form of agreement, the failure of our Government to include the four or five principal commodities requested by Canada, notably cattle, cream, codfish and seed potatoes in the list of concessions we were prepared to make had, frankly, rendered it almost impossible to reach a solution; at any rate one along the lines originally envisaged.
Dr. Skelton said that he quite understood the political situation in the United States which made it difficult for us to go as far as perhaps the economic situation would otherwise permit, but that nevertheless he deeply regretted the trend events had taken as he really felt that the list of concessions his Government had been prepared to make to us, had we been able on our part to present a more “effective” list, would have resulted in a really constructive and worth-while agreement.
As it was, it might still be possible perhaps to reach an agreement lowering tariff rates on certain products by mutual concessions, but he doubted very much whether on the restricted list we had now presented them they would be able either to give way on the point of arbitrary valuations or to concede us most-favored-nation treatment. The best they would probably be able to do would be to give us the intermediate tariff.
The Prime Minister, he said, had returned from his western tour for a brief sojourn in Ottawa before continuing on with the campaign in Quebec and the Maritime Provinces, and during this brief respite they had been able to discuss the matter with him and had secured his consent to have the Canadian experts, Mr. Wilgress and Mr. McKinnon, return to Washington with Mr. Herridge with instructions to continue discussions with the State Department with a view to seeing what, if anything, could be done. But time was short and he wondered whether anything could be done in the brief time remaining before the elections to reach even such a limited agreement as that which he had discussed.
Dr. Skelton felt that the parity suggestion on cattle (as I telephoned the Department recently, both Dr. Skelton and Mr. Herridge appear to be under the impression that the “85% parity” solution on cattle originally, it is understood, approved by the President, is still open) was of doubtful value, either economically or politically, and that the failure to include any real concessions for the Maritime provinces—certain fish items and lobsters on the free list amounted really to very little—presented a difficult obstacle, politically, for the Government.
[Page 26]The Counselor of the Legation informs me that in a very informal talk today with Mr. Charles Hebert, member of the Canadian Tariff Commission, the latter expressed the personal opinion that it should be possible to deal with the question of arbitrary valuations satisfactorily by proceeding in a way somewhat similar to that now employed for the British, that all suggestions for determining fixed valuations should be given a public hearing before the Tariff Commission before they could be put into effect. He said that this measure had resulted in a considerable improvement of the situation with the British. He said that the experience of the Tariff Commission had been that advocates of fixed valuations were usually reluctant to have to go into a public hearing and explain all their company interests in order to justify the increased protection. Rather than do this they customarily dropped the matter when they found a public hearing was necessary. He did not explain whether in his view this would mean a revision of existing valuations or would merely be a measure aimed to give a public and more satisfactory analysis of plans for new valuations or increases in the old valuations. In the latter event if this suggestion is made, it would certainly appear that we should try to obtain a complete revision of existing valuations to be brought about by eliminating the existing valuations and only re-establishing them upon hearings along the lines of Mr. Hebert’s talk.
In the event that Dr. Skelton’s pessimism should prove justified and it should be found impossible to reach any agreement before the elections, or should an impasse be reached, Mr. Boal15 has advanced the idea that perhaps the Department, if it has not already done so, might wish to consider whether the conclusion of a purely provisional temporary modus vivendi might not serve to keep alive the principle of a trade agreement between the United States and put into effect certain benefits which our exporters are seeking and at the same time not irrevocably commit either government with respect to the final decisions to be reached in the conclusion of a more permanent agreement. If such a modus vivendi were legal, possibly under the Trade Agreements Act,16 as at first glance would seem to be the case, it could operate from now until June 12, 1937, by which time, under the present act, it appears that some form of agreement with Canada must be reached if a more permanent agreement is to exist. The modus vivendi could be amplified or curtailed, as the case might be, to form the permanent agreement. It would seem to me that this would have the following advantage: that even though it only covered a limited number of commodities it would probably serve to demonstrate that no great damage to our producers would result immediately from a [Page 27] Canadian agreement, and the immediate entering into effect of the intermediate rates and other benefits offered by Canada would concern a considerable portion of our business world who are directly or indirectly interested in exportation, so that they would be reluctant to see these benefits removed next year through a failure to reach an agreement with Canada.
Mr. Boal suggests, and I am inclined to agree with him, that whatever government may find itself in power in Canada after the elections, and the possibilities of a clear Liberal victory become less great as the campaign continues, might now be inclined to go further in concessions to us if they have the knowledge that at some later date—let us say early in 1937, our Government might be willing to go into our side of the agreement on a wider basis than is at present possible. Furthermore, the provisional character of the agreement might make it possible for the Canadians to justify certain concessions as experimental, and to point out that they were advanced on the distinct understanding that there was no commitment to maintain them more permanently. Mr. Boal had discussed this idea very tentatively with a member of the Commercial Attaché’s office, who pointed out very justly that even a provisional agreement which provided immeasurably more benefits for us than the Canadians would be apt to work against our interests ultimately by causing dissatisfaction in Canada. Thus it might be wiser to make a balanced agreement now, even though we are not able to obtain revision of the valuation system and most-favored-nation treatment as part of it. But it might also be possible to make this as a temporary adjustment pending the eventual outcome of the negotiations and to indicate in the adjustment that before the conclusion of negotiations both valuations and most-favored-nation treatment will receive adequate consideration by both countries as features of a permanent agreement.
This suggestion is, of course, advanced with diffidence, since I fully realize that the Department has undoubtedly canvassed the field of such ideas already. However, as it has not been previously offered in this form by the Legation, I am taking the liberty of including it in this despatch.
Respectfully yours,