Lot 65A987, Box 99

Memorandum of Conversation, by Mr. Homer S. Fox, Member of the United States Delegation Staff 1

Participants: Mr. Clayton, Chairman of U.S. Delegation
Mr. Wilgress, Chairman of Canadian Delegation
Mr. McKinnon, Canadian Delegation
Mr. Fox, U.S. Delegation

Mr. Clayton inquired whether Mr. Wilgress had had an opportunity to review the statistical summary and charts which had been sent to him regarding the United States offers.

Mr. Wilgress replied that he had studied them carefully, found them of great interest and that they made a very impressive showing. He was fully cognizant of the lengths to which the United States had gone in preparing its offers. He thought, however, that for several reasons too much importance should not be attached to any such statistical appraisal.

In the first place, the United States had started from a higher tariff level than had Canada. In the second place, while Canada was of course interested in direct reciprocal reductions between our two countries, and in fact had only comparatively few items on which they considered the United States offers perhaps somewhat inadequate, Canada was very much interested in the opening of the United States market to other countries. He thought the only way that Canada could meet its commitments to the United States was by means of a considerable increase in imports from other countries which would make more exchange available to them, increase their purchasing power and thus equip them to purchase larger quantities of Canadian goods. He thought that while the United States tariff on Canadian goods had been appreciably lowered already, and would be further lowered under the present proposals, this was not true to the same extent of the United States tariff against the goods of other countries.

Mr. Wilgress also stated that Canada was interested in reductions of duty which would result in actual increases in trade as distinct from reductions which provided a good statistical presentation. On this point he thought the United States showing was somewhat weak in that there seemed to have been a tendency in making the United States offers to make the major reductions on items in which there was already a substantial import trade, but to be more hesitant regarding items in which there was little or no trade because of prohibitive duties or where further reductions would result in increased imports of a strongly competitive nature.

[Page 934]

For example, among the few items in which Canada was directly concerned in a major way, he cited groundfish fillets. It seemed to him that this was a case where the United States was being unnecessarily restrictive in its offer. It was true that the offer included a substantially larger tariff quota but that perhaps if the competitive angle had not been given undue consideration no quota at all might have been necessary. In addition the over-quota duty had been raised, which would be a point of great difficulty in Canada. The Canadian offers contained no increases and even this one increase on the United States side would cause a great deal of dissatisfaction in Canada with the whole agreement as being contrary to the general principles of the program.

Mr. Wilgress then reviewed the history of United States tariff negotiations, pointing out that in 1935 the United States had been given the Canadian intermediate tariff rates plus some reductions from those rates. In 1938 further reductions had been made to the United States on a wide range of items. Both of these negotiations had resulted in effect in horizontal cuts in the Canadian tariff. Now they were proposing a third cut pretty much across the board and while, admittedly, most of their reductions were small, they were widespread, and he thought went very far to offset a smaller number of larger reductions on the part of the United States. He also referred to the fact that the United States had limited the amount of its reductions to 50 percent of the existing rates whereas Canada was able in a number of cases to make 100 percent reductions by adding important items to the free list. He repeated that he thought the two offer lists were not statistically comparable and that the Canadian offers represented, in their way, a contribution comparable to those of the United States. He also stressed the fact that Canada had been the strongest supporter of the United States in this whole program, that its objectives were similar, and he felt that this was an important consideration.

Mr. Clayton replied that as regards the height of the tariff, we did not accept the contention that the United States now had a high tariff, referring to the very substantial reductions which had been made since 1930, and that taking into account the reductions already made and now proposed, together with the changes in the price level, the average duty (on dutiable items only) would probably be less than 20 percent. He noted the Canadian interest in improving multilaterally the trading situation, and stated that that is just what we are attempting to do and believe we are doing it in the only practicable way.

With regard to specific items such as fish fillets, Mr. Clayton said that the United States did not like quotas, even tariff quotas, and in fact has only a very few. In this case it seemed to be the only way that the United States could give a substantial concession and the quota proposed had been substantially enlarged to approximate the [Page 935] maximum of even the abnormal imports of recent months. He thought it quite probable that actual imports in the future would not reach the proposed quota level and while he regretted the necessity of increasing the over-quota tariff rate, this was an essential corollary of the larger quota, and in fact, at present price levels or anything approximating them, would probably be not greatly restrictive of trade even if future imports should tend to run above the quota.

Mr. Clayton then said he would like to explain the United States position on wool. Even though Canada was not directly interested to any extent, she was indirectly affected in various ways. He explained the situation at some length, including reference to the pending legislation and informed Mr. Wilgress that he (Mr. Clayton) expected to return home shortly for two or three weeks to do what he could to prevent this legislation being passed and in fact to try to prevent any further increase in the impost on wool.

Mr. Clayton then referred to the subject of preferences, explained the great and longstanding interest of the United States in the elimination or substantial reductions of British preferentials, indicating that no appreciable improvement in this situation was apparent in the offers thus far made to the United States, and that unless we could show substantial progress in this direction we could not go back home. He also referred to the commitments made by the United Kingdom in connection with the loan agreement.

Mr. Wilgress replied that as far as Canada was concerned some reductions in preferences had already been proposed and that if and when the wool situation were cleared up so that Canada could be given a free hand by the other dominions, very much more indeed could be done in the way of reduction of preference margins. He said that, of course, they were very greatly handicapped at the moment and that the only way they could make any definitive and substantial improvement would be, under present conditions, to denounce their agreements with Australia and possibly South Africa, and that this would be very difficult for them to do. The impression gained from his remarks was that, in spite of their reluctance, they would, if the necessity should arise, as for example if Australia and possibly South Africa were to withdraw from the present negotiations, Canada would denounce its agreements with those dominions, although of course he did not specifically commit himself on this point. The tenor of his remarks in this connection also was that there was little likelihood of Australia at any rate being able to continue present negotiations unless there were some reduction in the duty on wool.

Mr. Clayton, as part of his explanation of the wool situation, had indicated that while he could understand the political difficulty he could not understand the economic arguments put forward by Australia. [Page 936] On this point Mr. Wilgress stressed the political importance of the subject in Australia and indicated that in all the southern dominions, somewhat isolated as they are from the rest of the world, a subject like this tended to assume an even greater political importance than it might perhaps do in Canada or some other country nearer to the center of things.

Mr. Wilgress then asked Mr. McKinnon if he had any additional remarks to make. Mr. McKinnon said that as regards the statistical summary he had already explained, in the negotiating meetings, his complete lack of confidence in statistical presentations, that he would not even look at them, and that in his opinion the appraisal of the relative contributions of the various countries must be made on other grounds. He thought, as had been expressed by Mr. Wilgress that the Canadian offer list, consisting as it did of a large number of small reductions, constituting in effect a further horizontal cut in the Canadian tariff, was in its way as much of a contribution as the United States offer list, although of an entirely different nature. As regards preferences he said Canada had given complete freedom to the other dominions to make whatever reductions in preferential margins they might consider appropriate without obtaining prior agreement from Canada in individual cases. Mr. Wilgress interjected at this point that Canada had informed the other dominions that all that was necessary was to inform Canada of the action taken.

Regarding the maintenance of preferential margins by lowering both the MFN and preferential rates by the same amount, Mr. McKinnon was understood to justify this largely on behalf of the West Indies. He said that so far as he had been able to examine our offer list, it did not provide for any increased market in the United States for West Indian products, and Canada could not entirely cut off its own market for those products unless and until the United States could take at least a share of the load.

Mr. McKinnon then referred to the negotiations thus far and expressed the view that if we continued to negotiate on an item-by-item basis it not only would take months but that the result would be unsatisfactory both to Canada and to the United States—to Canada in that more reductions might be forced upon them than could be accepted by Parliament and that while many of them might add up to a good statistical presentation from the United States point of view, they would not in fact be greatly effective in increasing trade. On the other hand the United States might wind up by being resentful of what seemed to it the rather niggardly Canadian approach and that the effect all around would be unsatisfactory.

Mr. Fox inquired at this point whether Mr. McKinnon had any alternative procedure to suggest. He said that the negotiations thus far had proceeded according to the usual procedure and by mutual agreement. [Page 937] Mr. McKinnon replied that he thought it would be a great saving of time and that the same result would be accomplished if each side were to select the few items on which they thought a really effective reduction could be made and more or less to take the balance of the schedules as read. Mr. Fox pointed out that this would hardly be practicable for the reason that while Canada might have only three or four major items on which it might wish to press for further reductions, the United States was interested in a wider range of commodities, most of them much less important individually, and that if any such procedure as that suggested by Mr. McKinnon were to be followed, it would necessarily have to be on the United States side by groups of commodities, rather than by individual items, although he was not even sure that this would be feasible. We would, however, consider what might be done to meet Mr. McKinnon’s point.

Mr. McKinnon also suggested that the system of negotiating teams set up by the United States might be conducive to the development of competition between those teams to see which could make the best showing regardless of the merits of the reductions which they might be seeking. Mr. Fox assured him that this was not the case, that both the United States offer and request lists had been prepared on a unit basis, that the negotiating teams were only a convenience for the saving of time and the expediting of the negotiations, and that they were not in any sense concerned either with competitive showing among themselves or with the establishment of a favorable statistical position as such.

Further general discussion followed at the end of which Mr. Wilgress expressed to Mr. Clayton the hope that similar discussions might be held with him at frequent intervals. He thought they were extremely helpful and useful, and expressed his appreciation for the opportunity of holding the present conversation.

  1. Mr. Fax was the Commercial Attaché at Ottawa.