Foreign Relations of the United States: Diplomatic Papers, 1942, General; the British Commonwealth; the Far East, Volume I

561.321D1 Advisory Committee/101

The Counselor of the Canadian Legation (Mahoney) to the Chief of the Division of Commercial Policy and Agreements (Hawkins)

Washington, February 23, 1942.

Dear Mr. Hawkins: With reference to the meetings on January 19th and January 20th, concerning the proposed tripartite Cotton Agreement, I enclose herewith a copy of a revised text of the Agreement, dated Ottawa, February 16th. This text contains revisions agreed upon at an interdepartmental meeting, held on February 16th, and the new draft is being hastened to you informally as a basis for future discussion.

The reason that we cannot at the moment give your Department a formal reply to your original text is that our technical advisers have within the past few days raised doubts about the workability of the Agreement, as at present drafted. The Department of External Affairs want to have these doubts resolved before seeking Cabinet approval and giving a formal reply to your Department.

In order to deal with the matter as quickly as possible the Department have requested their technical adviser, Mr. Blair Gordon, to come to Ottawa this week to take part in discussions with members of the interdepartmental committee and Mr. Clifford Taylor, Agricultural Attaché of your Legation.

In the meantime I may tell you informally that the following are some of the difficulties of administration which it is intended will be discussed with Mr. Taylor:

(a) Canadian importers have made firm contracts for a considerable amount of cotton which has not yet entered Canada. The final paragraph of the agreement refers to cotton “entering” or “imported into Canada.” Thus, this paragraph as at present drafted, applies to existing contracts. Is this the intention of the drafters and have all the implications been considered?

(b) Similarly, paragraph 4 of the agreement, which is concerned with the spread between the price of Brazilian and of United States cotton, might be interpreted to apply to existing contracts.

(c) The question arises, therefore, whether it might not be desirable to add to the agreement a paragraph along the following lines:—

“Nothing in this agreement shall be construed as affecting in any way the fulfilment of contracts outstanding on the date on which the agreement comes into effect.”

(d) What procedure do the United States and Brazil contemplate using in order to ensure that their exports to Canada are regulated in accordance with the terms of the agreement? While the United States might be able to control the export of United States cotton to Canada by the use of its subsidy, it is difficult to envisage the method which Brazil would use to control the export of Brazilian cotton to Canada since presumably Brazil has today no government control over cotton exports. The Brazilian problem also seems complicated by the existence of stocks of Brazilian cotton in the United States. Suppose, for example, that at the end of nine months of an “agreement year” Brazil has exhausted its share of the year’s exports to Canada, how is control going to be exercised over the movement to Canada of the stocks of Brazilian cotton in the United States?

Following the discussions on the above points, I hope to be able to communicate with you further without delay.

Yours sincerely,

M. M. Mahoney

[Enclosure]

Ottawa, February 16, 1942.

Draft Tripartite Cotton Agreement, Canada–Brazil–United States of America

The Governments of the United States of America, the United States of Brazil and Canada agree as follows:—

(1) The Governments of the United States and Brazil shall regulate the annual exports of raw Upland cotton from their respective countries to Canada on the basis of estimated annual requirements by Canada of 540,000 bales of 478 pounds net weight of such cotton, of which the United States and Brazil may each supply not more than 270,000 bales of 478 pounds net weight. At least twice during each agreement year the Joint Cotton Committee, established pursuant to paragraph 7 of this agreement, shall review the estimate of such requirements and make such revision therein as it deems necessary. In the event that the revised estimate exceeds 540,000 bales of 478 pounds net weight, the Governments of the United States and Brazil agree so to regulate their exports that the increase in the amounts of raw Upland cotton supplied to the Canadian market by the two countries shall be shared equally by each one of them. In the event that the estimate is less than 540,000 bales of 478 pounds net weight, the Governments of the United States and Brazil agree so to regulate their exports of raw Upland cotton to Canada that the share of each of the two exporting countries shall be reduced equally, provided that Brazil’s share shall not be greater than the amount by which such estimate exceeds 250,000 bales of 478 pounds net weight.

(2) If it should appear that either of the exporting countries may be unable to export to Canada such quantities of raw Upland cotton as were jointly agreed upon with the other exporting country pursuant to the provisions of the preceding paragraph, the Joint Cotton Committee shall investigate the situation and report its findings and recommendations to the signatory governments.

(3) If the Joint Cotton Committee finds that one of the exporting countries may not be able to export to Canada the quantity of raw Upland cotton agreed upon with the other exporting country pursuant to the provisions of paragraph (1) above because of inadequate shipping facilities, the said exporting country agrees to permit the other exporting country to supply the deficiency, provided that the quantity so supplied shall in the following year be deducted from the share of the latter and added to the share of the former. If the deficiency should be supplied in this manner in the first year of the agreement, the agreement shall not be subject to termination at the end of that year as provided in paragraph 13.

(4) The Government of the United States shall adjust its export payment on cotton exported to Canada so that when such payment is deducted from the spot market price of Middling 15/16-inch cotton at Memphis, Tennessee, or from the price at which the Commodity Credit Corporation releases Middling 15/16-inch cotton at Memphis, Tennessee for export, whichever is lower, plus the cost of delivery including handling charges to Montreal, the resulting figure shall be a price at least ½ cent but not more than 1 cent per pound higher than the spot price of Brazilian (São Paulo official type 5 28/29 mm.) cotton at São Paulo plus the cost of delivery and handling charges to Montreal.

(5) The Governments of the United States and Brazil shall not maintain prices of raw Upland cotton for export to Canada from the United States and Brazil, respectively, higher than the price at which Upland cotton of the same quality is offered for sale from that country to any other export market.

(6) In converting the price of Brazilian cotton to United States currency, the rate of exchange shall be the official export rate of exchange established by the Bank of Brazil.

(7) A Joint Cotton Committee composed of two representatives of each participating government shall be established for the purpose of supervising and administering the operation of this agreement. The Committee shall make all necessary provisions for carrying out its duties.

(8) Meetings of the Committee shall be held in Washington, D. C., unless otherwise agreed.

(9) The Committee shall promptly notify the participating governments of any revisions made in the estimate of Canadian requirements of cotton. The Governments of the United States and Brazil shall furnish the Committee quarterly with a statement showing the average monthly price at which cotton has been exported to each country of export. Each participating government shall supply to the Committee upon request any information which may be available regarding the sale, arrival, movement and consumption of cotton. All such data shall be held in strict confidence and shall not be released without the permission of the government supplying the information.

(10) The Committee shall submit an annual report to the signatory governments not later than one month after the end of each marketing year.

(11) The expenses of the members of the Committee shall be borne by the Government which they represent.

(12) Nothing in this agreement shall be construed as imposing any obligation on the Canadian Government to purchase or cause to be purchased any specified quantities of cotton from either the United States or Brazil, nor shall anything in this agreement be construed as requiring the Canadian Government to take any action regarding the importation of raw cotton which is inconsistent with its treaty obligations to countries not party to this agreement, nor shall anything in this agreement be construed as imposing any obligation on the Canadian Government or any agency of the Canadian Government to be guided in regulating the importation of raw cotton, whether by direct purchase or otherwise, by considerations other than price, quality, marketability and terms of sale which would ordinarily be taken into account by a private commercial enterprise interested solely in purchasing any product on the most favourable terms.

(13) This agreement shall become effective on . . . . . and remain in effect for two years thereafter, unless one of the participating governments gives at least 90 days written notice of its intention to terminate the agreement at the end of the first year. Such notice must be received by the other countries not later than 90 days prior to the end of the agreement year. This agreement may be extended for additional periods by mutual agreement of the participating governments.

(14) The term “annual exports to Canada”, as used in this agreement, shall include all Upland cotton originating in the United States and in Brazil entering Canada during the agreement year, but shall not include linters, waste cotton, or raw cotton returned to countries of origin because of rejection under sale contract. The “marketing year” shall include the 12-month period from . . . . . to . . . . . The term “Upland cotton” refers to the varieties of gossypium hirsutum species commonly grown as annual crops in the United States and Brazil. The term “annual Canadian requirements” refers to the Joint Cotton Committee’s estimate of the quantity of raw Upland cotton which will be imported into Canada from the United States and Brazil during the marketing year.