842.801/92
The Secretary of State to the Minister in Canada ( Robbins )
Sir: I have received your despatch No. 183, of September 6, 1933,28 requesting information concerning the policy which the Department desires to pursue with regard to the amendment of Section 935 of the Canada Shipping Act,29 whereby American lake vessels may be prevented from engaging in the transportation of Canadian goods from one place in Canada to another place in Canada, either directly or by way of a foreign port, or for any part of such transportation.
As you are doubtless aware, the possibility that Canada may, by putting into effect this legislation, bar American lake vessels from transporting Canadian grain from a Canadian port to an American port and thence after transshipment back to a Canadian port is of great importance to American elevator operators, lake vessel owners and port and other transportation interests. I am enclosing for your [Page 36] study a copy of a memorandum30 outlining a detailed review of the question as presented to this Government by the spokesman for these interests.
The most important desideratum is, of course, that no steps be taken by Canada to complicate the existing situation in respect of the port and transportation problem by bringing this amendment into force. If, however, it seems likely that some such action will be taken, you should stress the point that the American law on which the Canadian amendment is said to be modeled is at present liberally construed by this Government from the standpoint of Canadian carriers. You should express the hope that this liberal construction will be reflected in the interpretation placed upon the Canadian amendment.
Section 27 of the Act of June 5, 1920 (41 Stat. 999) known as the Merchant Marine Act of 1920, provides in part as follows:
“That no merchandise shall be transported by water, or by land and water, on penalty of forfeiture thereof, between points in the United States, including Districts, Territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States, or vessels to which the privilege of engaging in the coastwise trade is extended by sections 18 or 22 of the Act: Provided, That this section shall not apply to merchandise transported between points within the Continental United States, excluding Alaska, over through routes heretofore or hereafter recognized by the Interstate Commerce Commission for which routes rate tariffs have been or shall hereafter be filed with said commission when such routes are in part over Canadian rail lines and their own or other connecting water facilities: …
The liberal construction mentioned above is instanced as follows:
- (1)
- Section 27 of the Merchant Marine Act of 1920 was construed on December 31, 1924, in an opinion rendered to the Secretary of Commerce by Attorney General Harlan F. Stone (now a justice of the Supreme Court of the United States) with respect to grain shipments, as outlined therein. For your close study and information, I am also enclosing the full text of the opinion, with a summary thereof,31 as given in 34 Opinions of Attorneys General, page 355. The portion of this opinion that is at present of concern relates to the transportation of American grain in a foreign vessel from an American port to a Canadian port, without existing intent on the part of those responsible for the transportation that the grain shall be transshipped to an American port, and the grain is intermingled and its identity lost, in which case such transportation becomes an exportation from the United States. The subsequent transportation of such grain [Page 37] into an American port may or may not be a violation of Section 27 of the Merchant Marine Act, which must be determined by the existing facts in each case. The intention of the shipper, and not the contract of shipment, is the controlling factor in determining whether the transportation is a violation of the Act. The development of this opinion is treated as Class 1 (2) and in the Second Conclusion in the Opinion of the Attorney General.
- (2)
- The first part of this opinion hinged upon the fact that the Interstate Commerce Commission had not at that time taken action which would put into effect the proviso of Section 27 (vide ut supra). Several rate tariffs have now been filed with the Commission where the routes as described are in part of Canadian rail lines and connecting water facilities, in the case of American grain shipped on Canadian vessels from American ports to Georgian Bay elevators. The grain is there stored indefinitely and later shipped by Canadian railroads into the United States, principally into New England, much of it for domestic consumption, without payment of duty. A considerable quantity moves in this way. I am enclosing copies of statements by the Interstate Commerce Commission and the Department of Commerce in this regard.32
- (3)
- The interpretation of Section 27 was also considered by Attorney General John Sargent in an opinion rendered to the Secretary of Commerce on February 4, 1926 [35 Opinions, page 42] ,33 a copy of which is also enclosed,34 in which consideration was given to the transportation of gasoline for export by a foreign vessel from one port to another in the United States and thence to a foreign port, under the conditions given. Following the conclusion that “it would be advisable to have the question settled in the courts in a test case” he withdrew the opinion that this did not constitute a violation, in a further opinion dated October 8, 1927 [35 Opinions, 317].33 So far as I am informed, the Assistant Director of Navigation has not prepared any test case to be brought before the courts based upon the facts given in Mr. Sargent’s opinions.
The effect of the interpretation placed upon the American law in these instances is to permit Canadian vessels to transport between ports of the United States cargo which is not destined for ultimate delivery and consumption in the United States. It is to be hoped that Canada will accord similar privileges to American vessels in respect of cargo destined for foreign countries in the event that the amendment of the Canadian law is brought into force. In order to provide definite assurance that the present construction of the American law will be maintained and that a similar construction of the Canadian [Page 38] amendment would be instituted and maintained, this Government would be prepared to consider the conclusion of an ad hoc treaty with Canada whereby vessels of each country operating on the Great Lakes or the St. Lawrence River would be allowed to carry cargo destined for export, between ports of the other country.
For your information, there is at present a disposition in this country to question the material results following upon the Attorney General’s opinions on this question as outlined above, and more than a mere possibility exists that in the absence of a treaty whereby these opinions would in effect become part of the law, the question may be brought before the courts. In case it is intended to bring the Canadian amendment into force, therefore, a treaty is desirable, not only to commit Canada to this liberal interpretation, but to insure that any satisfactory adjustment of the situation from the standpoint of American shipping will not be overturned by a revised interpretation of the American law to the disadvantage of Canadian shipping.
The conclusion of such an agreement by treaty would also prevent difficulties arising over certain provisions of the recently passed amendment to the Canada Shipping Act (Section 932), as well as possibly over the interests of American stockholders in Canadian corporations which are the owners of ships under Canadian registry.
It is noted that only British vessels as defined in Section 932 (a) of the Canada Shipping Act may engage in the coasting trade of Canada. Numerous efforts have been made to amend Canadian legislation in this regard, one of them being incorporated in Bill 74, Canadian House of Commons, Third Session, 17th Parliament, 1932, a copy of which was transmitted with the Legation’s despatch dated May 11, 1932,35 file No. 800. The object of the amendment to Section 935 proposed therein was to procure that in the case of a British ship owned by a corporation, seventy-five per cent of the stock must be owned by British subjects to entitle the ship to engage in the coasting trade of Canada. The prejudicial effect of such an amendment upon the interests of American stockholders in certain Canadian corporations which are the owners of ships registered in Canada is clear.
Although the position of this Government would be as outlined above in case the Canadian Government decides to bring the 1933 amendment into force, the Department doubts the advisability of taking the initiative in reopening the question. The present situation is satisfactory from the standpoint of American interests, and, in view of the Prime Minister’s promise not to take any action until after he has discussed the matter with you, no good purpose would be served by instituting negotiations, the outcome of which could not be foreseen. At most the Department considers that you might on suitable [Page 39] occasion mention the matter and discreetly indicate to the Prime Minister that what this Government desires is not only an opportunity to be heard before action is taken but that it would like to present its views as soon as the question comes up for consideration by the Canadian authorities and before their views have begun to crystallize.
There is a further question involving Canadian and American ports and transportation agencies which may present itself and which, unless an understanding is reached, may complicate the problem of dealing with the above question along the lines suggested. I refer to the possible enactment by the Congress of the United States of a bill providing for an additional ten per cent tariff on goods imported through contiguous countries. A copy of a proposed bill in this regard is attached.36 This legislation would be aimed solely at the present Canadian practice of imposing discriminating tariffs on goods imported into Canada via the United States. There is the danger, however, that such action by the United States would seriously complicate the problem of dealing with the situation presented by the proposed amendment of the Canadian law concerning coastwise shipping. In the event that the issue described above is opened, you may in your discretion mention the possible enactment of legislation by the United States along the lines indicated above and endeavor to make it perfectly clear that such legislation would not in any sense be directed at the Canadian amendment concerning coastwise shipping, but would be designed solely to overcome the disadvantages under which American ports and transportation agencies now labor in consequence of the long standing Canadian discrimination against indirect shipments.
While the immediate object is to forestall confusion between the questions of indirect trade and coastwise shipping, this Government would of course be prepared to bring them together in the proposed treaty by including therein a provision whereby each country would accord to indirect importations through the other the same treatment as is accorded to direct importations. Such a solution would be a most happy one from the standpoint of this Government which is extremely reluctant to take any steps to penalize the use of normal economical channels of trade and which feels that producers and consumers of this continent all would benefit if there were a free choice of transportation routes. A settlement of these two questions along the lines indicated would further forestall the possibility that, owing to rivalry between transportation interests in each country and the continued pressure on their Governments, the obstacles to the joint use of all the transportation facilities of this continent may be continually increased and by-products of friction and ill feeling may result.
[Page 40]The principal point to be kept in mind for the present, however, is that even though Canada may be unwilling to abandon its discriminations against indirect trade, the adoption of equalizing legislation by the United States is unrelated to the question of coastwise shipping and should not prejudice in any way an adjustment of this latter question.
Very truly yours,
Under Secretary