FW 611.422/10–2649

Memorandum by the Assistant Secretary of State for Economic Affairs ( Thorp ) to the Under Secretary of State ( Lovett )

top secret

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.

[Page 407]
[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

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.

  1. Presumably John Foster Dulles.