811.114 Canada/5084
Memorandum by the Assistant Chief of the Division of Western European Affairs (Hickerson) to the Secretary of State
The negotiations between our Treasury Department and the Department of Justice on the one hand and the Canadian distillers on [Page 822] the other have now reached a critical point. The United States Government conferees, Mr. Graves of the Treasury Department and Mr. Whittaker of the Department of Justice, regard the offers on the part of the Canadian distilleries as unacceptable and if better offers are not received are going to recommend to their principals that the Senate Finance Committee be asked to proceed with the impending embargo legislation. In this regard I should point out that the conferees feel that two of the Canadian companies (Consolidated Distillers and United Distilleries) have made genuine efforts to make settlements and have offered about all which their weak financial positions make possible. I am told that the Government conferees would not hold up a settlement of this matter because of the offers on the part of these two companies, but they insist that the other companies, Hiram Walker and Seagram Distilleries, must substantially increase their offers.
The following table shows the amount of the Government’s claim and the amount of the offers made to date:
| Name of Distiller | Amount of Claim | Offer to date |
| Seagram’s | $25,000,000 | $1,200,000 |
| Hiram Walker | 19,000,000 | 800,000 |
| Consolidated | 4,500,000 | 237,500 |
| United Distilleries | 4,000,000 | 225,000 |
| Totals | $53,000,000 [sic] | $2,462,500 |
At the request of Messrs. Graves and Whittaker, I talked to Mr. Wrong, the Canadian Chargé, twice yesterday to inform him of the status of the negotiations and to urge upon him the desirability of the Canadian Government’s trying to get the two larger companies to increase their offers. Mr. Wrong spoke with great feeling on the difficulty in which such a request placed the Canadian Government. He said that it was true that the Treasury Department had insisted from the start of the negotiations that they could not reveal the nature of their evidence, but that the Canadian Government had hoped that in the discussions the companies would be able to obtain some information regarding the makeup of the claim (that is, amount for import duties, excise taxes, income tax, etc.) and the years covered. None of this information, he said, had actually been furnished the companies and they were completely in the dark as to what kind of claim they were being asked to pay. He added that the companies had stalwartly claimed that they had violated no American law and that they regarded any payments as a tax to permit them to continue doing business in the United States. Mr. Wrong stated, however, that he believed that the Seagram Company could probably, on the basis of present information, be induced to increase its offer to $1,500,000, and that the Hiram Walker Company might go as high as $1,000,000. [Page 823] He made it clear that he did not know this to be the case as regards either company, but that he was merely expressing an opinion, indicating at the same time that he thought Walker’s increase would be more difficult to obtain than Seagrams.
If the offers of the Canadian distillers were increased, as suggested by Mr. Wrong, the resulting amount would be a few thousand dollars short of $3,000,000, or to be exact, $2,968,500. The Government conferees, Messrs. Graves and Whittaker, have indicated to me that they would be willing to recommend acceptance of the offers of the two small companies on the present basis, but that they would insist that the two larger companies offer not less than 10 cents on the dollar, or $2,500,000 for Seagrams and $1,900,000 for Walker, making a total of $4,400,000 for the larger companies. You will observe that this is only $1,900,000 in excess of the offers which Mr. Wrong believes the companies might be induced to make.
As you know, there will be a perfectly dreadful situation in our relations with Canada if this legislation is proceeded with, and to let $1,900,000 stand in the way of dropping this legislation is to my way of thinking little short of pathetic. Prime Minister King has discussed this matter at considerable length on several occasions recently with Mr. Armour, stressing the exceedingly difficult political situation in which he would be placed were this legislation to be pressed. The Prime Minister points out that he took his political life in his hands in effect in 1930 by forcing through legislation to stop the smuggling of liquor into the United States and that he cannot believe that the American Government now gives as much consideration as they should to this cooperative action on his part. The Prime Minister points out that the legislation might lead to the complete nullification of one of the products on which Canada was granted a concession in the trade negotiations, even if the legislation did not violate the terms of the agreement (which we insist that it does not technically, although there can be no doubt that it is a violation of the spirit of the agreement).
The Prime Minister has indicated that he would like to write a letter to the President or talk to him about this whole matter, stressing the seriousness of the situation as regards American-Canadian relations. Mr. Wrong, the Canadian Chargé, has also asked to see the President before a decision is reached to press for this legislation. Mr. Wrong has stated that he wishes most emphatically to urge upon our Government that it will necessarily have to assume the responsibility for this blow to American-Canadian relations if we allow a small sum to stand in the way of a settlement of these troublesome cases out of court.