561.321D1 Advisory Committee/102
Memorandum of Conversation, by the Agricultural Attaché in Canada (Taylor)13
| Present: | Mr. Escott Reid |
| Mr. Dana Wilgress | |
| Mr. Angus | |
| Mr. Blair Gordon | |
| Mr. S. R. Noble | |
| Mr. Mackintosh |
At the request of Mr. Reid I joined a meeting at 4:30 p.m. which had been in session since 4 p.m. for the purpose of discussing certain [Page 580] aspects of the tripartite cotton agreement. I stated that I had received a telephone call from Mr. P. K. Norris of the Office of Foreign Agricultural Relations, Department of Agriculture, in Washington, with respect to the questions which had been raised at the conference on the previous Friday.14 Mr. Norris had stated that it was not administratively possible nor acceptable to our Government to exempt from the agreement sales made prior to its effective date. To do so would postpone the practical usefulness of the agreement for a year if the existing contracts were so great as to conflict with the terms of the agreement. However, there was nothing to indicate that the existing contracts covered quantities so great as to cause difficulties in which case there was no need for exempting them. Under the agreement the export subsidy rates mentioned in paragraph 4 will relate to the date of sale (not the date of exportation) in such a way as to bring the landed cost in Canada for the basic grades and staples of Brazilian and American cotton within the prescribed range of ½ cent to 1 cent premium for American cotton. For other grades and staples of cotton commercial premiums and discounts are to prevail, it being believed that differences in favor of Brazilian or American cotton will average out. With respect to the possibility that Canadian mills will be required to change their machinery in mid-season to handle cotton from a different source, I repeated that this had not been found difficult to do in changing from American to Brazilian, that the mills customarily carried stocks at their mills for three or four months’ requirements and that Canadian mills were accustomed to exchanging supplies of cotton to meet their individual requirements. I also confirmed the understanding that the price of American loan stocks would inevitably rise as storage and interest charges accumulated and as the supply of low-priced loan stocks became exhausted. I quoted Mr. Norris to the effect that Brazil expected to enforce its quota limitation by means of exchange control and export licensing. Finally, Mr. Norris had stated that the Committee would estimate Canadian annual requirements in the light of information supplied by Canadian members of the Committee and that this was an important reason for Canadian participation in the agreement.
In the discussion which followed, Mr. Blair Gordon and Mr. S. R. Noble made it clear that they were convinced that the Canadian mills would consider Brazilian cotton to be undervalued according to the terms of paragraph 4 and hence Canada would be confronted with the necessity of creating administrative machinery for allocating the Brazilian cotton to the various mills. The necessity of so doing would be highly probable if Canadian annual requirements dropped to a point only slightly in excess of the 250,000 bales mentioned at the end of paragraph 1. They thought that the ½ to 1 cent provision in [Page 581] paragraph 4 should be made subject to revision if experience proved that it did not equalize the attractiveness of Brazilian and American cotton in terms of price.
Mr. Blair Gordon emphasized the greater attractiveness of Brazilian cotton in terms of price by pointing out that the price charged by the Commodity Credit Corporation did not truly represent the price paid by Canadian mills for American cotton. He said the loan stocks did not contain the qualities desired by Canadian mill buyers and that when such cotton was “swapped” for the desired qualities of cotton on the open market a substantial loss was incurred. For example, he cited a recent purchase of American cotton at 12.66 less 2-cent subsidy plus 85 points for transportation which, after being exchanged on the open market for cotton of the desired qualities, cost 13.50. He said these two figures were strictly comparable, both representing middling white 15/16 in U. S. currency before adding war exchange tax or incidental charges.
There was also a little discussion of the difficulty of controlling Brazilian cotton exported to the United States when not all such shipments were finally forwarded to Canada.
I reminded those present that the negotiations had been conducted in Washington and that the technical information which I was in a position to give them was obviously insufficient to answer fully the questions raised in connection with the intended methods of implementing the agreement. Several persons said they realized that to be the case and thanked me for the help I had been able to give. Mr. Noble then suggested that it would be desirable for a Canadian delegation to return to Washington for another conference with the negotiators of the agreement. I asked if such a conference could be held soon because Mr. Norris had indicated a hope that the agreement might be concluded soon and made effective as from March 1. Mr. Reid said he could not understand why the State Department was in such a hurry to conclude the agreement. I suggested that it was probably because the Brazilians had been kept in Washington for so long a time that they wanted to conclude the agreement and get back home.
The conference was still in session when I left at 5:15 p.m.