811.114 Canada/50612/6a

The Acting Secretary of State to the Assistant Secretary to the President (McIntyre)

Dear Mr. McIntyre: Mr. Armour has just telephoned to me this afternoon to say that questions had been asked in Parliament this afternoon with regard to Section 403 of the Liquor Tax Administration Act. The Minister of Trade and Commerce arose to say that this [Page 802] section “virtually nullified the trade agreement”. On further questioning the Prime Minister himself stated that in the event of legislation of this character going through, he would reopen the discussions with the United States under Article 11 of the trade agreement, which provides for consultation, and if this failed of effect, he would make use of the escape clauses by which the Canadian Government could rescind the entire trade agreement.

These questions and answers have only just occurred in the Canadian Parliament and we shall not know the precise language employed until tomorrow afternoon.

Appreciating fully the desire of the President that the State and Treasury Departments should harmonize the situation and reach an agreement, Judge Moore, Mr. Hackworth, Mr. Hickerson and I have been working almost continually with a number of Mr. Oliphant’s24 assistants, Messrs. Klaus, Hester, Graves and Frank, who seem to have sole authority and responsibility for the bill. It is true that the Treasury has come down considerably in their demands, but the Section in its new form is highly dangerous and will not, in my opinion, be acceptable to the Canadian Government.

In agreement with the Treasury I have this afternoon handed copies of the section, as redrafted, to the Canadian Chargé d’Affaires, who expressed keen disappointment that the principle,—the embargo, still remained in the measure and he promised to give me Mr. Mackenzie King’s viewpoint by tomorrow afternoon.

I would not bother you with this matter were I not alarmed at the prospects of the Canadian Government denouncing the trade agreement, and my feeling of special responsibility in view of the absence of Secretary Hull, who, I know, is greatly exercised at the danger of the actual situation.

Sincerely yours,

William Phillips
  1. Herman Oliphant, General Counsel for the Treasury Department.