842.801/127
The Chargé in Canada (Boal) to the Secretary of State
[Received June 18.]
Sir: I have the honor to refer to the Department’s instruction No. 768 of May 27, 1935, (file No. 842.801/126) regarding the question of carriage of grain on the Great Lakes. The Department will recall that it was originally contemplated (the Department’s telegram No. 26 of May 18, 6 p.m., 1933, and my telegram No. 36 of June 1, 3 p.m., 1933)51 that the entire question of Canadian and American shipping on the Great Lakes might fruitfully be discussed at the time of the trade agreement negotiations. Subsequently, in accordance with the Department’s instruction No. 103 of November 3, 1933, the suggestion of a treaty on the subject between the United States and Canada was broached and on February 12, 1935, the Prime Minister stated that it would be desirable to have the possibility of such an agreement examined and indicated a willingness to discuss the situation as soon as we were ready to do so. The Department of Commerce, however, has since indicated that the proposal of a treaty did not meet with its approval.
The Department’s instruction of May 27, 1935, encloses a letter from the Secretary of Commerce and its enclosure, suggesting as an alternative to coerce Canada the prospect of amendment of that portion of Section 27 of the Merchant Marine Act of 1920, which makes exception for merchandise transported between points within the continental United States over through routes recognized by the Interstate Commerce Commission when such routes are in part over Canadian lines and their own or other connecting water facilities. Such an amendment would remove the transportation of such merchandise from Canadian lines to American lines.
The instruction says: “In the event that the Canadian authorities inquire as to the answer to be given to the Prime Minister’s note of February 25 [12], 1935, … it would seem desirable to discuss with him at considerable length the information given in the letter of the Secretary of Commerce and the accompanying report, as well as the suggested alternative put forward in the latter”.
While I believe that the portion of the Canada Shipping Act restricting the use of American ships on the Great Lakes, not only for the carrying of grain but for the carrying of other merchandise, has not been put into effect for reasons of Canadian domestic policy as well as because of the undertaking given to me by the Prime Minister that he would not make it effective without prior discussions with us, I [Page 49] think it would be inadvisable to delay discussion of the present situation with the Prime Minister until he himself raises the question. He is in the position of having acceded to our request for delay and a discussion of the matter and is now awaiting information from us as to when we are willing to undertake that discussion. In the meantime the proclamation of these sections is held in abeyance. Since we now know that adjustment of the matter by treaty as originally contemplated does not meet with the approval of our Department of Commerce, we should in my view make this fact known to the Prime Minister immediately. I believe it would be both expedient and proper for us to do this.
I have studied carefully the letters from the Secretary of Commerce and the Director of the U. S. Shipping Board Bureau in consultation with the Commercial Attaché and Assistant Trade Commissioner Peterson. While only 16% of the Canadian grain at Buffalo was transshipped to Montreal, we believe that upon proclamation of the Canada Shipping Act more than 16% of the total grain traffic is likely to be affected as shippers at the original loading point will prefer to use carriers whose cargoes could be transshipped at Montreal, if desirable, after the cargo arrives at Buffalo rather than to be limited to a U. S. destination through the employment of an American carrier. I note that the analysis of trade is limited to grain. It appears to me that the shipment of ore, oil, coal, wood and other products in American vessels will also be affected occasionally. I appreciate that it will be difficult, in the absence of practical experience of the Canada Shipping Act, to determine to what extent our shipping interests on the Great Lakes will be affected. I also understand the reluctance of the Department of Commerce to see our coastwise shipping laws breached at any point and I am not in a position to contradict the statement that if coastwise protection were removed, American shipping on the Great Lakes would not be in a position to compete with Canadian shipping on those waters.*
At the same time I am dubious as to the wisdom of suggesting retaliatory action through the amendment of section 27 of the Merchant Marine Act of 1920. No doubt the Departments concerned will have assured themselves that such an amendment would not meet with so much opposition from the New England and Lake States as to make its defeat likely. It must be obvious that it would be very unfortunate to make a suggestion of retaliatory legislation and then fail to put it through if our hand were called. Even if we are sure, however, that [Page 50] the amendment can readily be made, it does not seem to me to be opportune to suggest this sort of retaliation just before we are about to enter into trade negotiations with Canada, nor do I believe that such a suggestion should be made as a current method of adjustment with Canada until all other methods of adjustment have been exhausted. In this case the Canadians have expressed a willingness to discuss the subject with us and the lack of discussion at this time is not due to any reluctance on their part.
Would it not be preferable to examine the possibilities of some adjustment, not necessarily through treaty, before intimating amendments of the law to divert present traffic to other routes? Would it not be possible to reach an adjustment as a part or as a corollary to the trade agreement? This matter will come up naturally in trade agreement discussions which might include review of the penalization of imports reaching Canada via American ports and retaliatory legislation suggested in Congress from time to time as the result of the situation thus created. (See also my confidential letter of February 12, 1935, to Mr. Hickerson, paragraph 7.53) Conversations might be extended to some informal discussion of the situation created by the obstacles placed upon the shipment of grain through the United States to Great Britain by the preference requirements of the British Customs authorities. It might be that the question of the grading of grain by American officials at Canadian ports on a reciprocal basis might be dealt with at the same time. This whole subject of intransit international trade between the United States and Canada could thus be examined with a view to laying the bases for some reasonable future adjustment before resorting to threats of retaliation. Such an adjustment would presumably include the continuation on our part of the exception contained in Section 27 of the Merchant Marine Act of 1920 with respect to through routings, provided equivalent facilities were continued for American ships under the suspension of appropriate sections of the Canada Shipping Act.
Two factors favor immediate discussion of Canadian shipping restrictions and American inspection of United States grain exported through Canadian ports: First, it appears that the Canadian Government is rapidly approaching the point when they must decide whether in shipping legislation they will favor the Maritimes at the expense of the central and western portions of Canada or the contrary. Under present conditions it looks to me as though the tendency will be to sacrifice the Maritimes to the western grain interests if they must make a choice. As a result of the Government’s introducing legislation in the Parliament for the establishing of a Grain Board, which virtually creates a compulsory national wheat pool, this whole question [Page 51] may become acute as an election issue and the Government may have to choose between measures which will appeal to the western grain interests because they facilitate the cheap and efficient export of grain, and those appealing to the Maritime interests because they preserve their grain shipping privileges at the expense of the grain growers. The Conservative Government might be happy to have an international agreement to point to as a reason, in the interest of the country at large, for certain positions to be taken to favor the grain growers at the expense of the Maritime interests. In the case of the grain inspection problem, the small amount of American grain being shipped through Canada makes the moment propitious for negotiations affecting that trade. For these reasons it seems to me that this would be as promising a time as any for a discussion of the whole subject.
I have at various times suggested to the Department the thought that in the long run we probably have more to gain than to lose in our future economic relationship with Canada by permitting a special contiguous country economic regime to grow up between Canada and the United States. Administratively, at least, such a regime already exists. The very provision of Section 27 of the Merchant Marine Act of 1920, which has been cited, is illustrative of this special relationship which exists between the United States and Canada. It appears to me that there is a substantial difference between the conditions of coastwise traffic along our Atlantic and Pacific coasts and those which exist along the rivers, lakes and railroads on the frontier between Canada and the United States. While I am not in a position to say whether the Department has even been inclined to recognize a difference between maritime coastwise traffic and inland coastwise traffic, it appears to me that adjustment of the latter between the United States and Canada as a separate matter might lead to the establishment of facilities for our trade in Canada and for the distribution of international traffic advantageous to our ports which in the long run should be of lasting benefit.
I think that at this time we should overlook no opportunity to arrive, through a reasonable discussion with the Canadians, at breaking down obstacles to trade and removing deterrents to the use of economically sound traffic routes, whether these objections be reached through the simplification of restrictive laws, procedure and administration or through tariff reductions. Experience seems to indicate that legal and administrative complications are at least as discouraging to international trade as direct tariff barriers.
Accordingly, I have the honor to recommend that I be instructed to approach the Prime Minister as soon as possible with the suggestion that although there appear to be serious difficulties to the conclusion of a treaty for the purposes which we have discussed we feel that it would [Page 52] be of mutual benefit to have a general discussion of shipping and transit problems between the United States and Canada at Washington during the negotiation of the trade agreement with a view to examining the situation and exploring the grounds for any possible adjustments which would lead to solution of problems connected with the Canada Shipping Act, grain grading, preference on direct shipments and maintenance of existing exceptions to our coastwise shipping laws in favor of certain traffic via Canadian routes.
Respectfully yours,
- Neither printed.↩
- It would be of assistance to the Legation’s work on the subject if the Department could communicate to me the statistics upon which are based the estimate that Canadian vessels on the Great Lakes operate at 50% of the American cost. [Footnote in the original.]↩
- Not found in Department files.↩