Foreign Relations of the United States Diplomatic Papers, 1938, The British Commonwealth, Europe, Near East, and Africa, Volume II

611.423 Lumber/333

Memorandum of Conversation, by Mr. Constant Southworth of the Division of Trade Agreements

[Washington,] March 5, 1938.

Participants:	Mr. Merchant Mahoney, Commercial Counselor of the Canadian Legation,
	Mr. Hiss,4
	Mr. Southworth.

Mr. Mahoney called, by invitation, at Mr. Hiss’ office the afternoon of March 4, 1938 and, in conformity with an understanding with Mr. Hawkins⁵ and Mr. Hickerson, was given the information indicated below:

It was explained to Mr. Mahoney that, although the Department, in an effort to lean over backwards to avoid any possible violation of the Canadian agreement,⁶ had taken the position that any amendment of the Revenue Act of 1932⁷ providing that board measurement for the purposes of that Act be the same as for the Tariff Act⁸ and that timber be subject to the import tax would be inconsistent with the agreement, nevertheless the final decision in the matter lay with authorities other than ourselves. Presumably if the Treasury rules that such an amendment does not violate the agreement, the courts will be called upon to pass upon such ruling. Mr. Hiss said that, speaking in a purely personal capacity as a lawyer, he felt it only fair to warn Mr. Mahoney that although the Department in the interest of protecting the agreement had felt that it must oppose the amendment, its legal position in so doing is, he believes, a weak one and that if a court decision is rendered on it, the ruling may very likely be unfavorable to Canada.

It was also pointed out that the advantage now enjoyed by Canada in the board measure matter and the contingent advantage now enjoyed by Canada in the timber matter are fairly clearly the result of faulty drafting of the Revenue Act of 1932, that the intent of Congress to subject sawed timber to the import tax and to have lumber measured for import tax in the same way as under the Tariff Act could not be seriously questioned, that consequently these advantages are in the nature of a windfall, that Canada itself uses the same system of board measure as in our Tariff Act, that the required use of two systems to measure the same lumber constitutes a serious burden upon the customs service, and that we, therefore, look forward to Canada’s voluntarily agreeing in the coming negotiations to the proposed rectification of these matters.

Mr. Mahoney said that he understood our position but commented that the proposed change in board measure would add about 25 cents per thousand board feet to the present duty.

Mr. Mahoney was also informed that although the Department had sent a letter to the Budget Bureau opposing the McNary amendment (which amendment would remove lumber and certain other timber products from the jurisdiction of the provision in the pending customs administrative bill conferring on the Treasury the power to exempt from origin marking products which have not been so marked during the preceding five years) Congress appears likely to enact the McNary amendment in a revised form which would merely leave lumber marking in its present legal status. He was further informed that due presumably to changing conditions such as lower cost of marking the Treasury in the absence of legislation changing the present requirements is likely to begin to require origin marking of lumber.

Mr. Mahoney said that this, if done, will add about $1.50 per thousand board feet to the cost of getting Canadian rough lumber into the United States. He was informed that the furnishing by Canada of further information on this point would be desirable and he undertook to obtain it for us. He expressed concern as to the effect which adding to the cost of Canadian lumber in the United States the cost of marketing and the additional import tax occasioned by changing the method of board measurement might have on the chances of bringing about the abatement of the British preferential duty on lumber in the British agreement. He said that he planned to communicate with Ottawa relative to these matters.

Mr. Mahoney expressed surprise that Congress in the revenue bill appears to contemplate removing the import tax from Western white spruce grown in only three Canadian provinces, remarking that this situation might be somewhat similar to the situation should Canada give California oranges different customs treatment from Florida oranges. He was informed that we had had no previous notice of Congress’ intention to include this provision in the present revenue bill and that we would probably seek to eliminate the discriminatory features thereof.

4. Alger Hiss, assistant to Assistant Secretary of State Sayre.
5. Harry C. Hawkins, Chief of the Division of Trade Agreements.
6. Presumably a reference to the Reciprocal Trade Agreement between the United States and Canada, signed November 15, 1935; for text see Department of State Executive Agreement Series No. 91, or 49 Stat. 3960.
7. 47 Stat. 169.
8. Tariff Act of 1930; 46 Stat. 590.