Subject: Proposed Elimination of Trade Barriers between
the United States and Canada
I mentioned to you several weeks ago that technicians of this Department
and the Canadian Government have been exploring the possibilities of
developing a treaty or agreement for the removal of tariff and other
trade barriers between the United States and Canada. As a leak would
kill the plan, the U.S. group working on it has been kept small and
limited to this Department; the Canadian group has been restricted to a
few high level officials.
The Canadians consider the proposal, if implemented, to be one of the
most momentous decisions in their history. Prime Minister Mackenzie King
was consulted and has authorized the attempt to develop a specific
plan.
The attached memorandum outlines a plan believed to be the most promising
of many that have been considered. The Canadians are ready to take it to
the Prime Minister. Before they do so we should be certain that it is
the considered judgment of the Department that the plan offers a sound
basis for negotiation.
The attached memorandum also covers the matter of timing and obtaining
bi-partisan support, which is essential. In spite of the difficulty of
negotiating in an election year we should give very careful
consideration to the proposal. The present may offer a unique
opportunity of promoting the most efficient utilization of the resources
of the North American Continent and knitting the two countries
together—an objective of United States foreign policy since the founding
of the Republic.
[Enclosure]
Memorandum by the Associate Chief of the Division
of Commercial Policy (Willoughby) to the Assistant Secretary of State for Economic Affairs
(Thorp)
top secret
[Washington, undated.]
Subject: Proposed Elimination of Trade Barriers
between the United States and Canada
In accordance with our conversation last Friday there is summarized
below the plan which has emerged from discussions with Canadian
technicians as the most promising basis for agreement to eliminate
trade barriers between the United States and Canada. I have also
included suggestions in regard to timing and methods for obtaining
bipartisan support.
Outline of Proposal
- (a)
- Immediate removal of all duties by both countries.
- (b)
- Prohibition of all quantitative restrictions on imports after
5 years except that (1) the United States would retain right to
impose absolute quotas on imports of wheat and wheat flour, and
(2) Canada would retain right to impose absolute quotas on
imports of certain fresh fruits and vegetables during Canadian
growing season.
- (c)
- The United States would retain right to impose absolute
transitional (5-year period) quotas on certain products now
subject to tariff quotas (most of the sensitive items from the
United States standpoint), with provision for progressive
increase in quotas during 5-year period.
- (d)
- Canada would retain right to impose absolute transitional
quotas on certain products during 5-year period, with provision
for progressive increase in quotas during period.
- (e)
- Provision would be made for joint consultation, particularly
for working out joint marketing agreements for agricultural
products.
- (f)
- Any controls imposed on exports of short-supply items would be
made subject to principle of equal sacrifice and equal benefit,
and advance consultation would be required before imposition of
such controls.
- (g)
- Consideration is being given to a clause ensuring, in the
event that one country is subject to military attack, continued
free access to the products of the other.
Principal Advantages
- (1)
- Maximum dramatic appeal, encouraging widespread
support.
- (2)
- Simplicity of operation, with concomitant advantages in
ability of public to understand proposal, ability of proponents
to defend against criticism, and avoidance of serious technical
difficulties.
- (3)
- Permits early announcement, without extended preliminary
negotiations.
- (4)
- Takes maximum advantage of adjustment opportunities provided
by present scarcity-and-demand situation, and by prospect that
ERP will prevent large
immediate increase in movement of goods from Canada to U.S., and
thereby reduce immediate impact on U.S. agriculture and
industry.
- (5)
- Would result in immediate elimination of all Empire
preferences granted by Canada, with important political and
economic implications for the United States.
- (6)
- Would enable Canada simultaneously to make similar offer of
free trade to the UK which would lessen likelihood of British
opposition to proposal.
- (7)
- Would limit the range of products for which transitional
protection would be provided, and would avoid extensive
discriminatory treatment between products.
- (8)
- Would ensure transitional protection for most sensitive U.S.
imports.
- (9)
- Would immediately remove serious obstacles to Canada exports
to the United States connected with U.S. customs
administration.
- (10)
- Would permit retention United States freedom of action with
respect to imports of wheat and wheat flour, the two most
important items from the U.S. standpoint.
- (11)
- Would permit retention Canadian freedom of action with respect
to seasonal movements of certain fresh fruits and vegetables,
thus increasing support from Canadian agriculture.
- (12)
- Would limit restrictions for balance-of-payments reasons to
transitional quotas; Canada would give up unilateral right to
impose restrictions for balance-of-payments reasons.
- (13)
- Would provide flexibility under formula for progressive
increase in transitional quotas permitting rational readjustment
for Canadian industries and over-all adjustment for EBP
requirements.
Principal Disadvantages
- (1)
- Involves greater immediate reduction of barriers on part of
the United States than by Canada, only partially offset by
Canada’s loss of preferential treatment.
- (2)
- Limits transitional protection to relatively few industries,
and may be criticized on the grounds that such transitional
protection is provided on an arbitrary basis.
Timing and Political Aspects
These present serious problems. In spite of the difficulties of
concluding the agreement in an election year we are convinced that
it should
[Page 409]
be signed and
announced this spring. Moreover, the project must be
bi-partisan.
There has never been a time when conditions in Canada, both economic
and political, were more favorable. In the United States we believe
that the public would favor it on both economic and strategic
grounds.
Postponement would incur a serious risk that conditions would so
change that we would lose a unique opportunity to knit the two
countries together—an objective of United States policy ever since
the founding of the Republic. Prime Minister Mackenzie King retires
in August and his successor may not be equally favorable to the
plan. A serious break in commodity prices or other economic or
political factors might intervene to make it impossible to conclude
the agreement.
Before carrying the project to a point where leaks are probable, the
most careful consideration should be given to the method of
negotiating and presenting the agreement to Congress and the public.
Tentatively, the following is suggested: As soon as the Department
and the Canadian Government are agreed upon the best plan as a basis
for negotiation we would discuss it, top secret, with the
Secretaries of Commerce, National Defense, Treasury and, possibly,
Agriculture. If support were forthcoming we would then take it up
with the President, probably at Cabinet meeting.
The next step would be to discuss it, still emphasizing the necessity
for secrecy, with a small number of Congressional leaders, possibly
Vandenberg, Taft, Martin, Barkley and Rayburn. The vital
significance from a strategic as well as economic standpoint would
be stressed as well as the fact that the plan closely follows past
Republican policy. We would try to work fast to keep ahead of
leaks.
The Prime Minister would then visit the President and formally
propose the negotiation of an agreement to eliminate trade barriers.
The President would appoint a bi-partisan group to
negotiate—possibly naming Dulles1 to head the Delegation.
Negotiations, based on a plan previously agreed upon in principle,
would be brief and the results announced during May.
It may not be essential that the agreement be ratified at this
session. An agreement along the lines outlined above is so important
that it could hardly be ignored by either party platform. We believe
that it would be endorsed by both.
With ratification virtually assured Canada could then proceed with
her constitutional processes. Probably a general election would be
required.
