811.114 Canada/5083½

Memorandum by the Under Secretary of State (Phillips)

I sent for Mr. Hume Wrong this afternoon and read to him the message which I had just sent to Mr. Armour, asking him to see Doctor Skelton and urge the desirability of endeavoring to persuade the Canadian distillers to come to grips with the problem and make definite proposals in respect to security, in the event that the cases could not be settled out of court; I told him that we were all greatly disappointed that after all our efforts the distillers apparently were not in a position to make any reasonable offers and that I was afraid that, unless there was a change of attitude on their part, the negotiations would break down and we would be up against the legislative problem; I hoped, therefore, that Mr. Wrong himself would do what he could through Doctor Skelton.

In reply Mr. Wrong said that he, too, was very much discouraged, that this week would, in his opinion, see the breakdown of the negotiations; he felt that the Treasury and Justice officials had been wholly unreasonable; that there had been no change of attitude on their part, which I had assured him would be the case; that they were still insisting upon a bond approximating the total claim and that this, of course, was impossible for the distilling companies to accept.

We discussed at some length this aspect of the case; I said that I had not understood that the Treasury was still maintaining that the security must approximate the total value of the claim and that I thought the Treasury was merely demanding a reasonable security. Mr. Wrong insisted that the companies did not understand this to be the case; he said that he had recently returned from Ottawa, where he had conferred with the Prime Minister; that with considerable difficulty the Canadian Government was restraining its irritation, but that when the negotiations failed there would be a wave of irritation and criticism.

At this point in the conversation I told Mr. Wrong of the report which I had just received to the effect that the Seagram Company had invited the so-called “Little Congress” (composed of secretaries and employees of members of Congress) to be their guests on a trip to Baltimore last Saturday to inspect their distillery; the company is said to have given a dinner in honor of the group and to have provided them rather liberally with refreshments, including a quart of whiskey to be brought home by each person. I added that this would seem to be an effort on the part of Seagrams to influence the legislation and was not a pleasant thought. Mr. Wrong was frankly horrified and expressed his disbelief that the company, as such, could have [Page 821] done anything as utterly stupid; possibly the local manager had conceived the idea, which admittedly was a very unfortunate one.

Mr. Wrong reaffirmed his position that the Treasury and Justice Departments had not changed their original position, which was wholly unreasonable and that the companies would of necessity prefer to submit to the proposed legislation rather than to be obliged to come across to the extent demanded by the two departments; in his opinion, the stand of our representatives, if continued, would end in a complete disruption of the negotiations.

After the above conference with Mr. Wrong, I called up the Legation in Ottawa and told them of the telegram which was under way and suggested that, in taking the matter up with Doctor Skelton, it might be a good plan to inform Doctor Skelton confidentially of the Seagram party to the “Little Congress” last Saturday; I briefly sketched this party.

William Phillips